December 2021 – Brazil – Rossetti Advogados

In principle, pursuant to the provisions of the law or of the articles of association, a member may leave the company upon assignment or transfer of its equity interest, on which occasion it would be substituted in the company by the respective assignee.It would be then negotiating its equity interest.

However, there is also another possibility for a member to leave the company, which differs from that in which it assigns its shares to another member or to a third party. It has the right to leave the company, upon payment, by the latter, of the amount of its assets pursuant to the provisions of article 1.031 of the Civil Code. In this case, in the words of the Civil Code, the shares held by the member will be liquidated and the company will be dissolved in relation to it.

The right of dissent and appraisal was introduced in the Brazilian legal system by means of article 15 of Decree 3.708/1919, which is the same that regulated limited-liability companies. Pursuant to the rules of that legal provision, the exercise of the right of dissent and appraisal was conditional upon a dissenting vote by a member with respect to an amendment to the articles of association imposed by the majority members. That means, the right of dissent and appraisal of a member of the company was limited to the events of amendment to the articles of association approved by the majority members, and therefore it could not be exercised at any time and in any form.

However, due to the limited events for exercise of the right of dissent and appraisal, many jurists defended, at the time, the amplitude of situations in which a member could pronounce on its wish to leave the company. The legal grounds for this position were article 335, item 5, of the 1850 Commercial Code, which authorized the dissolution of a company by the mere will of one of the members, provided the term of duration of the company were indefinite.

Throughout the time, both institutions – the institution of the right of dissent and appraisal and that of the partial dissolution of a company — commenced to intertwine, so that both the case law and the jurists faced them as the same thing. Therefore, in practice, the events of exercise of the right of dissent and appraisal were not limited to the event provided by law of amendment to the articles of association (art. 15, Decree 3.708/19).

Upon enactment of the 2002 Civil Code, which expressly revoked the 1850 Commercial Code, the issue was discussed again. In a specific chapter designed to regulate limited-liability companies, the lawmaker provided in article 1.077, following the same path of the 1919 Decree, that the right of dissent and appraisal originates from the disagreement by a member in the event of amendment to the articles of association approved by the majority members. The rule became known, among the jurists, as withdrawal for cause, since it rendered the exercise of the right conditional upon an individual pretext (see the dissent by a member from an amendment to the articles of association).

However, when providing on general partnerships, the lawmaker granted the members of companies the term of duration of which is indefinite the right to leave them without any specific reason, which was named by the jurists a withdrawal without cause (article 1.029 of the Civil Code). The creation of this institution, in turn, enabled a resumption of the discussion on the event of a member’s withdrawal from a limited-liability company the term of duration of which is indefinite. In fact, the rule of article 1.077 restricts the possibilities for a member to leave the company, while the rule of article 1.029 is broad, so that some jurists commenced to defend the application thereof in the cases of limited-liability companies due to an omission by the lawmaker.

In fact, the Civil Code authorizes application of the rules on general partnership to limited-liability companies whenever there is no specific provision, pursuant to article 1.053 of the Civil Code. However, the chapter that provides on limited-liability companies contains a specific rule for exercise of the right of dissent and appraisal, and other jurists defend that it is not possible to allow a withdrawal without cause in limited-liability companies.

However, while art. 1.053 of the Civil Code provides that limited-liability companies shall be subsidiarily governed by the rules applicable to general partnerships, it expressly authorizes, in its sole paragraph, that the articles of association contemplate the supplementary applicability of the rules on corporations. This results in the fact that, in the event of any omission in the chapter of the Civil Code relating to limited-liability companies, the supplementation thereof shall be made, depending on the articles of association, either by the rules relating to general partnerships or by the special law that governs corporations.

For example, the right of dissent and appraisal without cause in companies that operate for an indefinite term has not been regulated.

The submission to one or the other suppletive system is conditional upon the provisions of the articles of association; i.e., it depends on what has been agreed by the members.

If the articles of association are silent with respect to the suppletive system or elects the system of general partnerships, in those matters with respect to which the Chapter of the Civil Code on limited-liability companies is silent, the rules of the Chapter of the Civil Code on general partnerships shall apply. In case the articles of association elect as suppletive system the system of corporations, in those matters the limited-liability companies shall be subject to the provisions of the Corporation Law.

However, there is a principle that governs the Brazilian Law for a long time, which is the concept that the member cannot be a prisoner of the company, i.e., it is not required to remain a member against its will.

In a trial occurred in the month of March of this year (Special Appeal No. 1.839.078-SP), the Third Panel of the Superior Court of Justice – STJ, in which the reporting justice was Justice Paulo de Tarso Sanseverino, decided that even if the limited-liability company has chosen, in its articles of association, the suppletive applicability of the Corporation Law, the right of dissent and appraisal of the member set forth in art. 1.029 of the Civil Code (which is the rule applicable to general partnerships) shall apply to limited-liability companies that operate for an indefinite term.

This decision was based on two main arguments, which are indicated in the synopsis of the appellate decision: (i) the right of dissent and appraisal without cause results from the constitutional freedom not to remain a member, which is guaranteed by art. 5, item XX of the 1988 Brazilian Federal Constitution; and (ii) the lack of provision on the withdrawal without cause in the Corporation Law does not imply the prohibition thereof in the limited-liability companies supplementarily governed by the Corporation Law, especially because art. 1.089 of the Civil Code determines application of the provisions of the Civil Code to corporations relating to matters with respect to which the Corporation Law is silent.

The decision presents a precedent that deserves attention due to its impact on limited-liability companies that agree on the suppletive applicability of the Corporation law and which do not contain a provision, in their articles of association, on the possibility of withdrawal of a member without cause, so that whether or not there is a reason for the member to leave the company, it may do it, so that the company is partially dissolved, and the withdrawing member is entitled to receive its assets, which may be appraised based on the settlement of its equity interest and shall be paid by the company directly to the withdrawing member.

For more information on the above or in other matters, please contact Maristela SA Rossetti (mar@rraa.com.br) or Gilberto Rossetti (gmr@rraa.com.br).

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.

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