May 2021 – Brazil – Rossetti Advogados
Provisional Measure No. 1.040 (“MP 1.040”), signed by President Jair Bolsonaro, was published last March 30, 2021, proposing amendments to the law for the purpose of modernizing and streamlining the business environment in Brazil.
Among other provisions, MP 1.040 provides on the simplification and streamlining of company formation, protection to minority investors and facilitation of the foreign trade in goods and services.
These measures aim at improving the country’s position in the World Bank’s Doing Business ranking, which assesses the facility of doing business in 190 countries. Brazil currently ranks 124th.
Below we note the main amendments introduced by MP 1.040:
Protection of Minority Shareholders in Publicly-Held Companies
- Reserved Powers of the Shareholders’ Meeting. The following was included in the list of the reserved powers of the Shareholders’ Meeting: (i) approval of the disposition and contribution of assets to other companies, in case the amount of the transaction corresponds to more than 50% of the value of the total assets of the company informed in the last approved balance sheet; and (ii) approval of transactions with related parties that meet the relevance criteria to be defined by the Brazilian Securities Commission (“CVM”);
- Term to Call Shareholders’ Meetings. The term for the first call for Shareholders’ Meetings shall be increased from 15 to 30 days before the date scheduled for the meeting, it being understood that the CVM may postpone the date of the Shareholders’ Meeting for up to 30 days in case relevant documents are not disclosed to the shareholders. With respect to this issue, the CVM enacted, also on March 30, 2021, CVM Resolution No. 25, by means of which it acknowledges that immediate application of the new rule set forth in MP 1.040 could result in practical problems to various companies, considering that the statutory term to hold the Annual Shareholders’ Meetings is nearing. Therefore, the CVM established that the new term to call Shareholders’ Meeting of publicly-held companies shall apply only to Shareholders’ Meetings called as from May 1st, 2021 and, therefore, the Shareholders’ Meetings already called or those that may be called by that date may observe the previous 15-day term.
- Prohibition of Accumulation of Offices. MP 1.040 prohibits the accumulation of office as Chairman of the Board of Directors and as Chief Executive Officer or main executive of the company – which rule only applied to publicly-held companies that had acceded to certain differentiated governance levels; and
- Independent Directors. The mandatory participation of independent directors in the Board of Directors was determined, in accordance with the provisions and terms defined by the CVM.
Streamlining of Company Formation
With respect to the process of facilitation of company formation in Brazil, MP 1.040 provides the following:
- Better Access to Information. The bodies and entities involved in the process of registration and legalization of companies shall keep available to the users, free of charge, either personally or on the Internet, information, instructions and instruments that enable prior searches of the phases of registration or enrollment, change and writing off of businesspersons and legal entities and licensing and authorizations to operate, so as to clearly inform the users of the required documentation and feasibility of the place, trade name, registration, licensing or enrollment;
- Risk Rating of Business Activities. An act of the Federal Executive Branch will provide on the risk rating of the activities to be observed in the absence of a specific state, district or municipal law. Whenever the risk rating of the activity is deemed medium, the operating permit and the licenses will be automatically issued, without human analysis, by means of a system responsible for integrating the registry bodies and entities. The public acts of release of the operation of business establishment shall be effective for an indefinite term, except if there is any risk, which shall be substantiated in an act of the competent authority; and
- Unification of the federal, state and municipal enrollments with the National Corporate Taxpayers’ Registry (CNPJ). The tax record shall be centralized in the CNPJ, and the Public Treasury of the Federal Government shall exchange the tax record information with the respective states. So far, businesspersons were required to enroll with three different tax bodies. Upon enactment of the MP, the record will be centralized in a single CNPJ. The cities that adopt this single system may reduce the company formation procedures from 10 to three and organize a company in one day.
- Elimination of analysis of companies’ address. According to the government, this is a requirement that only exists in Brazil. The formation of a company required an analysis of the feasibility of the address informed – a prior search that sometimes included the visit of inspectors to the place of operation of the company. Upon enactment of the MP, the businesspersons may make a prior search on the Internet.
- Prior verification of trade name on the Internet. To date, this was made at the time of the company’s formation, which took longer. In addition to previously confirming the availability of the trade name on the Internet, the businesspersons may use the CNPJ to register the company’s name.
- Supply of Electric Power. Permission that the regulatory agency, Aneel, determines maximum terms for the obtainment of electric power. The term is expected to be reduced to 45 to 60 days – for medium-sized companies, the term is currently 123 days in Rio de Janeiro and 132 days in São Paulo. In addition, the MP establishes a maximum term of five days for the authorization of connection of electricity in public roads (less complex) and also tacit approval – in case the authority fails to pronounce. No term is currently established.
- Prohibition to require import licensing due to the characteristics of the goods when there is no normative act in this regard. According to the government, Brazil requires two to three times more import licenses than other countries, and there are no clear criteria governing the creation of licenses. In addition, the publication of a decree revoking measures that render foreign trade more time-consuming is expected.
- Creation of a new international trade system in substitution for the Siscoserv, with data shared by various public bodies.
- Strengthening of the single foreign trade portal, upon form completion digitization and the objective that 50% of the imports be made via the portal until the end of the year.
- End of the requirement that imports and exports by government-owned corporations or of goods subject to tax benefits be made by vessels flying the Brazilian flag. According to the Ministry of Economy, these vessels “do not exist” and the merchants must face “vast bureaucracy” to obtain a transportation authorization.
- It extinguishes prior import licenses relating to investigation of the country of origin of a given good that, as a consequence, receives preferential tariff treatment (waiver or reduction in the payment of import tax or, furthermore, distribution of tariff shares) – the so-called Non-preferential rules of origin. In these cases, the punishment shall now be imposed only after completion of the investigation.
- Permission for professional councils to take administrative collection actions, such as the inclusion in lists of delinquent debtors, avoiding that the debt increases and originates a lawsuit. This measure is an attempt at reducing the number of lawsuits in progress.
- It authorizes the creation of the Integrated Asset Recovery System, to be managed by the Office of the General Counsel for the Federal Treasury, to facilitate the identification and localization of assets and debtors and reduce the term for the collection of debts.
- Withdrawal of the barrier that sets forth that translators may only work in those States in which they are registered, allowing translators and interpreters to work throughout Brazil.
Production of Effects
The new rules established by MP 1.040 are effective as from March 30, 2021, except for the new term to call Shareholders’ Meetings of publicly-held companies, which, as mentioned above, shall only be valid for Shareholders’ Meetings called as from May 1st of this year, and for the prohibition to accumulate offices as Chairman of the Board of Directors and Chief Executive Officer or main executive of the company, which shall be effective within 360 days as from publication of MP 1.040.
Finally, we remind that for MP 1.040 not to loose its effects, the Brazilian Congress must analyze it within 60 days, which term may be extended a single time, for the same period.
This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.