October 2021 – Brazil – Rossetti Advogados
On August 25, president Jair Bolsonaro sanctioned Law No. 14.195/2021, the purpose of which is to improve the quality of the business environment in the country, by streamlining the procedures for the organization and operation of companies, foreign trade and enforcement of debts.
Below we note the main changes introduced by the new Law, as well as those deemed more relevant for companies, which may result in structural changes and even changes in the governance system.
Individual limited-liability companies (“EIRELI”) will cease to exist. However, the existing companies will not be required to take any measure, because these companies will be automatically transformed into one-member limited liability companies. The National Department of Corporate Registration and Integration (DREI) will regulate the transformation.
Another change refers to the possibility that companies conduct their shareholders’ meetings electronically, even if this is not set forth in their organization documents.
With respect to the place where the companies may engage in their business activities, Law 14.195/2021 introduced the possibility of a virtual place. In this case, the company shall inform the body with which the corporate acts are registered, for registration purposes, of the address of the company or the address of the sole proprietor or of one of the company’s shareholders, as applicable. Please note that there is still no definition of how some governmental bodies will behave vis-à-vis this new rule, since some corporate purposes require physical sites for achievement of the corporate purposes (e.g. industries).
As regards the companies’ managers, the law allows them to have official residence abroad, as long as they keep an attorney-in-fact in Brazil with powers granted for a term of up to three (3) years after the end of the manager’s management, to: (i) be served process in administrative proceedings and lawsuits brought against said manager based on the corporate law; or (ii) be served process in administrative proceedings instituted by the Securities Commission (“CVM”) against said manager, in the case of publicly-held companies.
Also with respect to the managers, they will have the power to confess to bankruptcy and file a court-supervised reorganization petition in the name of the company.
Protection of Minority Shareholders
Law No. 14.195/2021 introduced mechanisms to protect minority shareholders of publicly-held companies, by means of an amendment to Law No. 6.404 of December 15, 1976 (Corporation Law – “LSA”), granting the shareholders’ meeting powers to resolve upon the execution of transactions with related parties, the disposition or contribution of assets to other companies, in case the price of the transaction exceeds 50% of the amount of the total assets of the company in the latest approved balance sheet.
As regards the rules to call shareholders’ meetings, the new law granted more decision-making power to the shareholders, including minority shareholders, by extending the term to send information to be used in the meetings. From now on, the first call notice for shareholders’ meetings, in publicly-held companies, shall be published twenty-one (21) days in advance, and the second call notice shall be published eight (8) days in advance.
In addition, the CVM may declare, at its sole discretion or at the request of any shareholder, which relevant documents and information for the resolutions to be passed in shareholders’ meetings have not been timely provided to shareholders and order postponement of the meeting for up to thirty (30) days.
Finally, the new law vetoed the accumulation of offices as chairman of the board of directors and chief-executive officer in publicly-held companies. It is established that the CVM may permit exceptions for smaller companies.
Plural vote is a mechanism already broadly used in other countries, such as in the United States, and it basically permits the attribution of more than one vote per share in a certain class of shares of the capital stock of joint-stock companies, which was not permitted in Brazil before enactment of Law 14.195/2021.
The plural vote, which is generally granted to controlling shareholders or founders of a company, is instrumentalized by means of the creation of one or more classes of common shares, and it is limited to 10 votes per common share, in closely-held companies.As to publicly-held companies, no such class may be created in case the company already has shares traded on the stock exchange.
In addition, for the plural vote to be established in a company, it must be approved by the favorable vote of shareholders representing half the votes of voting shares and half the non-voting shares, if any, and it cannot be adopted in shareholders’ meeting that resolve upon: I – the remuneration of the managers; and II – the execution of transactions with related parties that meet the relevance criteria to be defined by the CVM.
Service of process upon legal entities by e-mail
Law No. 14.195/21 resulted in an important amendment to the Code of Civil Procedure (Law No. 13.105 of March 16, 2015), by providing on the service of process upon legal entities by e-mail, in a chapter named “procedural rationalization”.
In short, the legal entities will be required to inform and keep record data updated with the Judicial Branch. Based on these data, it will be possible to send services of process and subpoenas by e-mail.
The terms shall be counted as from the fifth (5th) business day as from confirmation of receipt of the e-mail.
Failure to confirm receipt of the electronic service of process within the term defined by law shall be deemed obstruction of justice, subject to a fine of up to five percent (5%) of the amount in controversy .
Trade notes are negotiable instruments, non-convertible into shares, represented by a document embodying a promise to pay in cash and which may be created by joint-stock companies, limited-liability companies and cooperatives.
One the most significant changes resulting from the new law is that the issue of Trade Notes must no longer be made in the form of a printed document, which procedure was time-consuming and aggregated operational risks as a result of the potential risk of destruction or perishing of the documents.
Now, this instrument is exclusively issued in book-entry form, i.e., in the form of an electronic record controlled by an institution authorized to provide bookkeeping services by the CVM.
In addition, the possibility of making the payments of amortization and/or conventional interest to the holders of the Trade Notes before the final maturity of the instrument, which was not possible under the previous rules, is now expressly permitted.
Another positive improvement is the corporate power to resolve on the issue of Trade Notes, which is now exercised by the Board of Directors or, in the absence thereof, by the managers of the issuers, according to their respective organization documents.
This ends the market discussion on the need to amend By-Laws or articles of association to expressly provide on these powers, which resulted from a mistaken interpretation of article 6 of CVM Instruction No. 566/15.
Finally, trade notes, which are instruments enforceable out of court, may be enforced based on a certificate issued by the bookkeeper or by the central depository irrespective of prior protest.
Other relevant matters
In addition to the aforementioned modifications, we present below some relevant matters that deserve our attention:
- Companies with businesses considered of medium risk, as defined by Resolution of the Committee for Management of the National Network for the Streamlining of the Registration and Legalization of Companies and Businesses (“CGSIM”), may automatically issue operating licenses and permits without human evaluation.
- All information of federal, state or municipal bodies with respect to the companies will be unified in a single database. All information contained in this database may not be requested to the companies for the issue of licenses, permits and even taxpayer card (CNPJ).
- The businesspersons may choose to use the CNPJ number as trade name.
- Companies that remain inoperative for more than ten (10) years shall loose the right to protection of the trade name.
- The authentication of signature of the signatories to the powers of attorney required by the Commercial Registries and the acts to be filed will no longer be necessary.
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.