Companies in Brazil may be either privately held (companhia fechada) or publicly held (companhia aberta). A company is publicly held when it has registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários or CVM). Also, publicly held companies are divided into two categories: category A, which allows the public issuance of any securities, and category B, which only allows the public issuance of securities which are not shares or securities convertible into shares.

As a rule, all shareholders of Brazilian companies, whether individual or legal entities, may be resident or domiciled abroad. Certain sectors have a restriction on the participation of a foreign investor or require specific government authorisation, such as financial institutions, mining and exploration of mineral and energy resources, the oil sector and broadcasting and the news media sector.

Disclaimer: the answers in this Q&A refer to one specific corporate type of company, which is the Brazilian limited liability company called sociedade anônima. There are also other corporate types which are very common in Brazil, such as sociedades por quotas, also limited liability companies, but more often used by small- to medium-sized companies, normally run by family members or by individuals with personal bonds. These companies are not allowed to offer securities publicly and have a simpler level of corporate governance. Thus, they will not be the subject of the analysis herein.

Companies may have common or preferred shares. A common share, as a general rule, entitles its owner to one vote at any shareholders’ meeting. Law 14,195, enacted on 27 August 2021, approved an amendment to Law No 6,404, of 15 December 1976, as amended, or the Brazilian Corporate Law, in order to include the multiple-vote share, which allows common shares to have more than one vote per share, under the conditions provided therein).

Preferred shares in general do not have voting rights and must have certain privileges granted and established in the bylaws, in addition to the privileges provided for in the law. One of these privileges, in closely held corporations, may be the priority in the distribution of dividends, fixed or minimum, and/or the priority in the reimbursement of the capital in the case of liquidation, with or without a premium.

Preferred shares of publicly held companies will only be admitted to trading in the event that they have:

• priority in the receipt of dividends corresponding to at least 3% of the book value per share (after this priority condition is met, equal conditions with common shares); or
• dividends 10% higher than those paid for common shares; or
• the right to participate in a public tender offer resulting from a change of control of the company.

Preferred shares of publicly held companies listed in the Special Listing Segment called Nível 2 of the Brazilian Stock Exchange (B3 S.A. – Bolsa, Brasil, Balcão or “B3”) have voting rights solely in shareholders' meetings convened to resolve on the following matters:

• a change of the company’s corporation's status, merger or spin-off;
• the approval of contracts between the company and its controlling shareholders, either directly or through third parties;
• valuation of assets to be used as payment for capital increase;
• the appointment of a specialised institution to determine the economic value of the company for the purposes of going private or the delisting of Nível 2 segment of B3; and
• an amendment to the company’s bylaws affecting the requirements of the Nível 2 Listing Rules.

Also, a holder of preferred shares will acquire voting rights in the event that the company fails to distribute, during three consecutive fiscal years, the minimum dividend required pursuant to the company’s bylaws, until the respective distributions are made.

The main law relevant to shareholders’ rights is the Brazilian Corporate Law.

Also, for publicly held companies, there is regulation from the CVM which is relevant to shareholders’ rights.

Finally, there is also a regulation issued by B3 for companies listed in one of the three Special Listing Segments: Nível 1, Nível 2 or Novo Mercado.

According to Brazilian Corporate Law, neither the bylaws of a company nor actions taken at a shareholders’ meeting may deprive a shareholder, regardless of its equity stake in the company, of the following rights:

• to participate in the distribution of net income;
• to participate, in proportion of the holder’s share of the company’s capital stock, in the distribution of any remaining assets in the event of liquidation of the company;
• to participate in any shareholders’ general meetings and discuss the matters of the agenda;
• pre-emptive rights in the event of a subscription of shares, convertible debentures or subscription warrants, except in certain specific circumstances under Brazilian Corporate Law, including the possibility of exclusion or reduction of pre-emptive rights by the board of directors up to the limit of the company’s authorised capital stock if the distribution of those shares is effected through a stock exchange, through a public offering or through an exchange of shares in a public offering, the purpose of which is to acquire control of another company;
• to withdraw from the company under circumstances such as:
1. reduction of the mandatory dividend;
2. creation of preferred shares or any changes to them;
3. merger and acquisition of the company; and
4. any amendment to the company’s corporate purpose;
• to call a shareholders’ general meeting, if the directors of the company fail to call a meeting within 60 days from the date they were required to do so under the provisions of the Brazilian Corporate Law;
• to monitor the management of the company in accordance with the Brazilian Corporate Law; and
• to propose a liability proceeding against the officers and directors of the company, in case that lawsuit is not proposed within three months of the respective approval by the shareholders’ general meeting.

Shareholders’ agreements and joint-venture agreements are enforceable in Brazil and it is very common for shareholders to enter into such arrangements.

Shareholders' agreements are binding on the shareholders and on the company and any violation thereof authorises the innocent party to enforce the agreement in court (specific performance). The chairman of the meeting is allowed not to consider votes cast in breach of shareholders’ agreements, as well as establish that the party who suffered damage makes use of the votes of the absent directors or those who refrained from voting.

General Meetings

• Shareholders representing 5% or more of the capital stock of the company may call a shareholders’ general meeting, if the directors or officers of the company fail to call a meeting within eight days after receipt of a duly justified shareholder request to call the meeting, indicating the proposed agenda;
• shareholders representing 5% or more of the voting capital or 5% of the non-voting capital of the company may call a shareholders’ general meeting, if the directors or officers of the company fail to call a meeting within eight days after receipt of a request to call a meeting to establish the fiscal council;
• shareholders representing 0.5% or more of the capital stock of the company may require a list of the addresses of the shareholders for whom the company required a proxy to a shareholders’ general meeting in order to send them the same request.

Board of Directors

• Minority shareholders representing at least 10% of the voting capital may require the adoption of a multiple voting system, by means of which each share is entitled to as many votes as there are board members and shareholders are entitled to the right to vote cumulatively for only one candidate or to distribute their votes among several candidates; in publicly held companies, these percentages are reduced in accordance with the capital stock of the company (CVM Instruction 165/91, as amended);
• in a separate election, shareholders representing at least 15% of the voting capital of the company and non-voting shareholders representing at least 10% of the capital stock of the company may each elect one member of the board of directors and its alternate; in case the holders of voting and no voting shares do not reach the required percentage, shareholders (either voting or non-voting) representing at least 10% of the capital stock of the company may elect one member of the board of directors and its alternate.

Fiscal Council

• A fiscal council must be established at a shareholders’ general meeting upon request of shareholders representing 10% of the voting capital, or 5% of the non-voting capital;
• in a separate election, the holders of non-voting shares will have the right to elect one member and its alternative and the holders of voting shares representing 10% of the voting capital will also have the same right;
• the members of the fiscal council must furnish information about matters of their responsibility whenever required by shareholders representing at least 5% of the capital stock of the company.

Others

• Shareholders representing at least 5% of the capital stock of the company may require in a shareholders’ general meeting that the officers and directors disclose information about shares acquired and sold in the last fiscal year, including from stock-option plans, benefits received from affiliated companies, conditions of the employment agreement and material facts related to the company;
• if the shareholders’ general meeting decides not to propose a liability proceeding against any officers or directors of the company, shareholders representing at least 5% of the capital stock of the company may do so; and
• shareholders representing at least 5% of the capital stock of the company have the right judicially to require the exhibition of the books of the company whenever the shareholder is suspicious that acts in violation of the law or the bylaws have occurred, or that irregularities have been committed by any of the management bodies of the company.

It is worth mentioning that the minimum percentage for the exercise of some of the aforementioned rights can decrease, depending on the amount of the capital stock of the company, as provided for in the CVM Instructions 165/91, 324/00 and 627/20 (applicable to publicly held companies only).

As discussed in 1.6 Rights Dependent upon Percentage of Shares, the Brazilian Corporate Law grants certain rights to minority shareholders based on certain thresholds, but specifically the right to monitor the company’s business in accordance with the Brazilian Corporate Law, which is a right granted to all shareholders, regardless of any minimum threshold.

However, the right to monitor the company’s business is not an unrestricted right. As a general rule, shareholders necessarily need to observe certain limits set out by the Brazilian Corporate Law when monitoring the invested company’s business, basically limited to the following:

• participation in the company’s shareholders' general meetings to discuss the matters submitted for approval;
• the right to receive the company’s financial information (financial statements, balance sheets and related management reports and report from the independent auditor, which is mandatory for publicly held companies and large companies (closely held companies or group of companies under common control which, in the previous fiscal year, had total assets in excess of BRL240 million) or annual gross revenue exceeding BRL300 million), and access to the company’s books;
• installation of a fiscal council; and
• access to relevant facts and other relevant information pursuant to transactions conducted by the company’s management.

It is the exclusive prerogative of the annual shareholders’ meeting (assembleia geral ordinária), which is required to be held within 120 days of the end of the financial year, to review the management’s account of corporate activities, to approve the financial statements of the company, and to determine the allocation of the net income and the payment of dividends with respect to the previous fiscal year. Members of the board of directors and the fiscal council are also typically appointed at the annual shareholders’ meeting, although these appointments may also take place at extraordinary shareholders’ meetings.

An extraordinary shareholders’ meeting may be held at any time during the year, including concurrently with the annual shareholders’ meeting. Under the Brazilian Corporate Law, the following actions, among others, may be taken only at a shareholders’ meeting:

• an amendment to the company’s bylaws;
• the election and dismissal of the members of the board of directors;
• approval of management accounts and audited financial statements on an annual basis;
• the suspension of the exercise of a shareholder’s rights in the event of non-compliance with Brazilian Corporate Law or the bylaws of the company;
• approval of the appraisal of assets offered by a shareholder to the company as payment for the subscription of shares of the company’s capital stock;
• approval of issuance of shares in excess of the limit of the authorised capital of the company;
• determination of the compensation of the management of the company and fiscal council, if and when created;
• approval of any transaction involving the transformation of the company into a limited-liability company, consolidation, merger or spin-off;
• approval of any transaction involving the dissolution or liquidation of the company, the appointment and dismissal of the respective liquidator and the official review of the reports prepared by it;
• authorisation for the management to request judicial recovery or bankruptcy;
• authorisation of issuance of debentures by the closely held company;
• approval of stock-option plans;

• only for publicly held companies, approval of related party transactions; and

• sale or contribution of assets to another company, if the transaction involves more than 50% of the value of the total asset of the company in its last approved balance sheet.

In addition, changes to preferences, advantages, redemption or amortisation conditions on the rights of the holders of preferred shares, or any change that results in the creation of a more favoured class of preferred shares, must be approved by the majority of the holders of that class of preferred shareholders voting as a single class.

Shareholders’ meetings are usually called by the board of directors. However, shareholders’ meetings may also be called by:

• any shareholder, if the board of directors fails to call a shareholders’ meeting within 60 days from the date set forth by applicable law or bylaws;
• shareholders holding at least 5% of the company’s total capital stock, if the board of directors fails to call a shareholders’ meeting within eight days from the receipt of a request for such a meeting, indicating the issues to be discussed and appropriate reasons;
• shareholders holding at least 5% of the company’s voting shares or 5% of the company’s non-voting shares, if the board of directors fails to call a shareholders’ meeting within eight days of the receipt of a request to call a meeting for the formation of the fiscal council; and
• the fiscal council, if the board of directors delays calling the annual shareholders’ meeting.

It is worth mentioning that the minimum percentage for the exercise of some of the rights above mentioned can decrease depending on the amount of the capital stock of the company, as provided for in CVM Instruction 627/20 (applicable to publicly held companies only).

Pursuant to the Brazilian Corporate Law, all notices for shareholders' meetings must be published at least three times in the official federal gazette or the official gazette of the state where the company’s headquarters are located, as well as in another high-circulation newspaper.

Publicly held companies: the first notice must be published at least 21 days prior to the shareholders’ meeting, and no later than eight days before the date of the meeting on the second call. The CVM may also, upon the request of any shareholder, (i) determine the postponement of the shareholders’ meeting for up to 30 days, in the case of insufficient information provided for the meeting, and (ii) suspend for up to 15 days the process of calling for a particular extraordinary shareholders’ meeting in order to understand and analyse the proposals to be submitted at the meeting.

Closely held companies: the first notice is published at least eight days prior to the shareholders’ meeting, and no later than five days before the date of the meeting on the second call.

Due to the COVID-19 pandemic, Brazilian laws and regulation granted shareholders of either closely or privately held companies a certain flexibility, allowing them to participate and vote in shareholders' meetings virtually.

Quorum

As a general rule, the Brazilian Corporate Law provides that a quorum for purposes of initiating a shareholders’ meeting shall consist of shareholders representing at least 25% of the total number of votes attached to the voting shares on the first call, and if that quorum is not reached, any percentage of the company’s voting capital stock on the second call. When the purpose of a shareholders’ meeting is to amend the company’s bylaws, a quorum consists of shareholders representing at least two thirds of the total number of votes attached to the voting shares on the first call, and any percentage on the second call.

In respect to an approval quorum, the Brazilian Corporate Law has adopted the principle of majority, which means that 50% of the voting shares plus one additional share present at the meeting has authority to decide on the matters to be resolved by the shareholders, except in some specific cases, when a higher quorum is required.

However, the affirmative vote of shareholders representing at least 50% of the total total number of votes attached to the voting shares is required to approve the following matters:

• a change in the company’s corporate purpose;
• a reduction in the percentage of minimum mandatory dividends to be distributed to the shareholders;
• any merger into or consolidation with another company;
• any spin-off;
• the participation of the company in a group of companies (grupo de sociedades, as defined in the Brazilian Corporate Law);
• application for cancellation of any voluntary liquidation;
• dissolution of the company; and
• merging all common shares into another Brazilian company, so that the company becomes a wholly owned subsidiary of that company (incorporação de ações).

For publicly held companies with a significant free float, as evidenced by cases where the companies’ three previous shareholders’ meetings were attended by common shareholders representing less than 50% of its total voting capital stock, the CVM may authorise a reduction of that quorum.

The bylaws of closely held companies may determine a higher quorum than the ones provided for in the Brazilian Corporate Law.

Exercise of Voting Rights and Electronic Participation

Since 2017, shareholders of publicly held companies may exercise their voting rights in annual shareholders’ meeting and extraordinary shareholders’ meetings called to elect members of the fiscal council or the majority of the members of the board of the directors, through the Distance Voting Ballot (Boletim de Voto a Distância), which allows shareholders to cast their votes through a form which can be delivered to the shareholders’ custodian, the share registrar agent of the company or directly to the company (CVM Instruction 481/09, as amended).

Due to the COVID-19 pandemic, Brazilian laws and regulation granted shareholders of either closely or privately held companies, a certain flexibility allowing them to participate and vote in shareholders' meetings virtually.

Inclusion of Matters to Be Voted in Shareholders’ Meetings

Shareholders representing 5% or more of the capital stock of the company may call a shareholders’ general meeting, if the directors or officers of the company fail to call a meeting within eight days after receipt of a duly justified shareholder request to call the meeting indicating the proposed agenda.

For publicly held companies, the CVM allows shareholders representing percentages of the capital stock varying from 0.5% to 5% depending on the amount of the capital stock, to include in the distance-voting ballots indication of candidates for the fiscal council and/or the board of directors and/or proposals of matters to be deliberated in the shareholders’ meeting (CVM Instruction 481/09, as amended).

As a general rule, the members of the board of directors are elected and removed by the vote of the majority of the shareholders in a duly convened shareholders meeting (see 1.8 Shareholder Approval and 1.9 Calling Shareholders’ Meetings).

However, Brazilian corporate law permits shareholders who, individually or collectively, hold at least 15% of the common shares or 10% of the preferred shares, on a separate ballot, the right to select each one director and his or her alternative. If the holders of common or preferred shares do not achieve the required percentage as an individual class, they can together, with a 10% percentage, elect one member.

Also, shareholders may require a multiple voting system to elect board members. Thus, any shareholder or group of shareholders holding at least 10% of the company’s capital may request that, at a shareholders’ meeting to elect the board of directors, the number of votes of each voting share is granted as many votes as the number of board members to be elected. Each shareholder may then vote for one board member with all his or her votes or distribute the votes among different members of the board of directors.

CVM Instruction 165/91, as amended, allows the minimum voting-capital percentage required for the adoption of the multiple voting system in publicly held companies to be reduced from 10% to as low as 5%, depending on the value of the company’s capital stock.

The number of board members may exceed the maximum set forth in the bylaws of the company if separate voting procedures are requested by the shareholders and, concomitantly, the election of the board of directors is conducted through the multiple voting system. Should this occur, shareholders or a group of shareholders bound by voting agreements representing more than 50% of the total number of votes attached to the voting shares would be entitled to select the same number of directors elected by the other shareholders plus one, regardless of the number of directors specified in the company’s bylaws.

See 1.11 Shareholder Participation in Company Management in relation to the appointment and removal of members of the board of directors.

Shareholders may challenge a decision/action taken by the company’s board of directors. See 3.2 Legal Remedies against the Company and 3.3Legal Remedies against the Company’s Directors.

The appointment and removal of the auditors of the company is a matter reserved to the board of directors. The members of the board elected by the minority shareholder in a separate ballot (see 1.11 Shareholder Participation in Company Management), if any, have a veto right on this matter.

In the case of publicly held companies, and pursuant to CVM Resolution 44/21, whenever the direct or indirect ownership interest of any shareholder or group of shareholders increases or decreases by 5%, 10%, 15% and successively in 5% increments, of each type or class of the company’s shares, that shareholder or group of shareholders must report to the company the following information:

• the name and qualification of the person providing the information;
• the purpose of the interest and expected amount;
• the number of shares and other securities and derivative financial instruments relating to those shares, whether a physical or financial settlement, specifying the quantity, class and type of the referenced shares;
• the terms of any agreement regulating the exercise of voting rights or the purchase and sale of ther marketable securities; and
• if the shareholder resides or is domiciled outside Brazil, the name and taxpayer-identification number of their agent or legal representative in Brazil;
• the company will then disclose this information to the market.

Also, the participation of the controlling shareholder must be disclosed in the company’s annual form (Formulário de Referência) and all tradings made by the controlling shareholder with securities issued by the company or referenced in them, must be disclosed monthly by companies listed in one of the Special Listing Segments of B3.

Shareholders are entitled to grant security interests over their shares. Shares may be sold by their owners, either privately or in the securities market, in the case of publicly held companies with shares admitted to trading.

The bylaws of a privately held corporation may set forth restrictions on the transfer of shares but cannot eliminate that right. Shareholders in a publicly held or privately held corporation may enter into agreements granting rights of first refusal, co-sale and other rights, which are enforceable if registered in the proper corporate books.

The shareholders’ meeting is exclusively responsible to authorise the management of the company to request judicial recovery or bankruptcy and to approve the dissolution and liquidation of the company. The approval of the dissolution of the company and the cancellation of any voluntary liquidation are subject to a qualified quorum. See 1.10 Voting Requirements and Proposal of Resolutions.

However, shareholders are not entitled, individually or as a group, to initiate an insolvency proceeding against the company as a financial or operational creditor would be able to do so.

Although there were temporary measures approved in connection with insolvency proceedings a result of the COVID-19 pandemic and the resulting economic crisis, there were no changes in relation to shareholders’ rights, as previously described.

There are no specific rules in Brazil regulating shareholder activism. The Brazilian Corporate Law, applicable both to public and private companies, sets forth special rights with the purpose of protecting minority shareholders, and these rights can be used for shareholder activism. Also, the rules issued by the CVM and by B3, applicable to publicly held companies only, also provide for additional shareholder’s rights. For a list of the main rights established by the Brazilian Corporate Law, the CVM and B3, see 1.4 Main Shareholders’ Rights and 1.6 Rights Dependent upon Percentage of Shares. For a list of the rights that shareholders tend to use more for activism, see 2.3 Shareholder Activist Strategies.

Shareholder activism is not a common practice in Brazilian market, since, historically, most Brazilian corporations have a controlling shareholder – usually a founder, which is also a member of the board of directors or director – and a low level of capital dispersion. However, this scenario has been gradually changing over the last few years, due to a number of reasons, such as the following.

• Growth of the Brazilian capital markets, reflected by a higher number of companies becoming public and making their successful initial public offferings (IPOs) and by a growing number of investors (including individuals trying to diversify their investment portfolios and institutional investors). According to information disclosed by B3 on 30 December 2020 about the profile of the investors, the number of Brazilian federal individuals’ taxpayer’s registry (CPF) registered in the B3 system increased 92.1% in 2020. It went from 1,681,033 in December 2019 to 3,229,318 in the same month in 2020. The increase in the number of individual investors during the COVID-19 pandemic is related to several factors, including the pursue of earnings due to the decline of the market at the beginning of the pandemic and the fact that Brazilian interest rate was at its lowest level in 2020.
• A significant increase in the practices of ESG (Environmental, Social and Governance) by Brazilian companies and a higher number of companies listed in the special listing segments of B3, which require higher and stricter rules of corporate governance and minority protection.
• A real effort from companies to create mechanisms to allow for a higher capital dispersion, adopting therefore the concept of “true” corporations.
• A high number of Brazilian companies which were affected by compliance/corruption investigations, which has resulted in a considerable reduction in their share value – resulting in minority shareholders’ losses – causing its shareholders to be more aware in relation to their rights and, consequently, allowing them to engage in a more active participation.
• A more proactive role of proxy advisory firms, such as ISS and Glass Lewis, releasing guidelines in relation to the agenda of several companies.
• A more proactive role of independent (or “activist”) asset management firms investing in companies with assets undervalued by the market with the intention to implement changes in the management or in the policies of the company.
• Recent initiatives and rules issued by the CVM allowing for more transparency, disclosure and participation of minority shareholders in general meetings, such as:
1. the enhancement of the content of the Reference Form (Formulário de Referência), which obliges companies to disclose in a very detailed manner most of the aspects of their corporate governance rules, including the highest, the lowest and the average remuneration received by the members of the management;
2. the creation of the Corporate Governance Form, which provides for ideal corporate governance principles and require companies to explain if each of them is adopted and, if not adopted, to explain why not;
3. the creation of the Distance Voting Ballot (Boletim de Voto a Distância), which allows shareholders to send their written votes in advance of the meeting and if they were present;
4. the possibility of entirely virtual shareholders meetings, which allow a higher number of participants of the publicly held companies; and
5. the possibility to decrease, depending on the amount of the capital stock of the company, the minimum percentage established by the Brazilian Corporate Law for the exercise of certain rights, such as the right to file a lawsuit to obtain indemnification from directors or officers to the benefit of the company.

Those changes in the Brazilian capital markets have led to an increase of shareholder activism and participation, although the number of precedents is still not very significant.

As a recent example, it is possible to mention the General Shareholders Meeting of Vale S.A., the company with the highest market value of all the Brazilian capital markets, held on 30 April 2021 (the first one after the company implemented a structure of “true” corporation, with a free float of approximately 60% of its capital stock) in which there was a real dispute among shareholders to be able to elect the independent members of the management of the company (as a company listed in the Novo Mercado special listing segment of B3, it is required to have at least 20% or two, whichever is higher, of independent members in the board of directors). In a nutshell, the management presented a list proposing 12 members to the board, and a movement led by a lawyer and former director of Vale presented an alternative list. Also, one of the main financial investors of Vale required the adoption of the multiple voting system (see 1.6 Rights Dependent upon Percentage of Shares and 1.11 Shareholder Participation in Company Management for an explanation about this system). After two days of discussions regarding the procedure to be used for the multiple voting, with an interruption of the meeting, four members who were not indicated by the management in its original list were elected by the shareholders.

Another prominent recent example of shareholder activism took place in the general meeting called to approve the merger between Linx S.A. and a subsidiary of StoneCo Ltd, a publicly held company listed in the Novo Mercado special listing segment of B3, in which an asset management firm gathered several other investors and requested to the CVM the interruption of the term between the first call notice and the date of the shareholder’s meeting of Linx, so that CVM could analyse an allegation of a potential conflict of interests of the controlling shareholders of the company. Although in the end the request was denied by the CVM, it was certainly one of the most important movements of activism led by investors in the past few years.

In Brazil, the following rights that shareholders tend to use more for activism can be highlighted:

• the right to call a shareholders’ meeting whenever the managers of the company delay the call for more than 60 days, in the cases set forth in the Brazilian Corporate Law or the bylaws of the company (applicable to any shareholder);
• the right to call a shareholders’ meeting whenever the managers of the company fail to do so within the term of eight days, upon their justifiable request that a meeting be called, which shall also indicate the matters to be discussed (applicable to shareholders holding at least 5% of the capital stock of the company);
• the right to request to the CVM the interruption of the term between the first notice of call and the shareholder’s meeting date for up to 15 days, in order for the CVM to analyse the agenda of the meeting (applicable to any shareholder of publicly held companies, in accordance with CVM Instruction 372/02);
• the right to file a lawsuit to obtain indemnification from directors or officers, as the case may be, for damages caused to the company, whenever the general shareholders' meeting decides that such a lawsuit shall be filed and the company fails to do so in the period of three months counted from the meeting (applicable to any shareholder);
• the right to file a lawsuit to obtain indemnification from directors or officers, as the case may be, for damages caused to the company, whenever the general shareholders meeting decides that such a lawsuit shall not be filed (applicable to shareholders holding at least 5% of the capital stock of the company);
• the right to request the adoption of the multiple vote system for the election of the members of the board of directors (applicable to shareholders holding at least 10% of the voting capital of the company);
• the right to request the setting-up of the fiscal council (applicable to shareholders holding at least 10% of the shares with voting rights or 5% of shares with no voting rights);
• the right to elect separately one member of the fiscal council and its respective alternative (applicable to shareholders holding at least 10% of the shares with voting rights or to any shareholder with no voting rights); and
• the right to elect separately one member of the board of directors of the company (applicable to shareholders holding at least 15% of the shares with voting rights or 10% of the shares with no voting rights).

It is worth mentioning that the minimum percentage for the exercise of the aforementioned rights can decrease, depending on the amount of the capital stock of the company, as provided for in CVM Instructions 165/91, 324/00 and 627/20 (applicable to publicly held companies only).

Thus, the most common attitudes that shareholders take are:

• participating in general meetings, requiring explanation and voting against certain matters, such as the remuneration of members of the management, which is a theme in which shareholders tend to pay more attention to and vocalise more;
• requiring the setting-up of the fiscal council and;
• using the mechanisms provided for in the Brazilian Corporate Law to elect members to the fiscal council and board of directors.

Specifically in relation to the COVID-19 pandemic, a very welcome rule was an amendment in the Brazilian Corporate Law (and the issuance of regulation from the CVM for publicly held companies) allowing companies to hold general shareholders' meetings virtually. This was a topic much discussed by the market but never implemented (until the pandemic) and the belief is that this possibility is here to stay, as many public and private companies decided to hold their meetings virtually this year, even when the social-distancing rules were lighter.

There are no current surveys or data in Brazil that indicate that any particular sector or industry is the target of activist behaviour by shareholders.

Shareholder activism in the Brazilian capital markets has traditionally been led by institutional investors (hedge funds, pension funds, investment funds and family offices), which tend to be more engaged and active in monitoring and participating in the decision-making process and in the company’s overall activities. However, recently independent (or “activist”) asset-management firms – which invest in companies with assets undervalued by the market with the intention to implement changes in the management or in the policies of the company – have been playing a leading role in shareholder activism in Brazil. They are often criticised for trying to implement changes which envision “short-term” results only, as opposed to institutional investors, which traditionally tend to look for long-term results.

There is no information available regarding the number of activist demands in the last year in Brazil.

In the recent past, acts or strategies implemented by activist shareholders was mostly seen in a negative way by the company and its controlling shareholders. This scenario was detrimental to both the company and its minority shareholders, as common ways to try to eliminate the activism “problem” included trying to limit minority shareholders' rights or not attending or procrastinating their demands and requests (normally until the investor files a claim before the CVM, for instance).

This scenario, although existent in many publicly held companies, has been changing as activist shareholders have gained space and visibility, demonstrating the importance of the active participation of minority groups in the daily life of the company as a way of improving corporate governance practices. Thus, the management of many companies does not necessarily see activism today as something that must be eliminated or confronted. Indeed, there are many situations in which the investor relations department fosters situations whereby investors and management can engage in conversations in order to try to reach an agreement about the “conflicting” issue.

Currently, it is possible to affirm that conflicts still exist (and always will), but companies, as a general rule, tend to try to maintain a friendly initial contact with activist shareholders and their demands (if those demands are not abusive), to avoid conflicts and negative consequences for the company itself and the members of its management.

In Brazil, companies have their own legal personality, which means that the legal entity is capable of being the holder of rights and obligations, with the capacity to exercise rights and be held liable for its acts.

In accordance with the principle of autonomy, the personality of the company shall not be confused with that of its shareholders. As a result of the principle of autonomy, it is the legal entity that holds the rights and liabilities arising therefrom. It is also the legal entity which demands and is demanded by reason of such rights and obligations. In practical terms, the legal personality attributed to companies differs and will not mingle with the legal personality of their shareholders, meaning that, in relation to responsibilities, as a general rule, shareholders and their personal assets shall not be responsible for the company’s liabilities.

However, according to the Brazilian Civil Code, when there is an abuse of the legal personality and damages caused to the company’s creditors, it is possible to ask for its disregard – the “piercing of the corporate veil” theory, inspired by US and UK laws. This means that, at the request of the public prosecutor or a private interested party, a judge, in a judicial proceeding, can disregard the company’s legal personality, attributing to its shareholders the burden of being personally responsible and with their own assets for the company’s liabilities.

Although regarded by the law as an exceptional measure, some judges in Brazil, especially when analysing tax and labour issues, tend to use this exception more often than they should, including the possibility of online attachment of assets.

In this regard, it is important to stress that recently, on September 2019, Law No 13.874 was issued, which sets forth that the disregard of legal entities shall only be applicable on very restricted occasions, in extreme scenarios of abuse of rights, fraud or asset confusion. Such dispositions, however, are not applicable for environmental matters, for which the application of the disregard of legal entities is already agreed upon.

Pursuant to the Brazilian corporate law, officers and directors are not personally liable for obligations assumed by the company by virtue of a regular management act, in which case only the company is liable. A regular management act is that one which is performed within the limits of the duties of the officers and directors and without violation of the law or the articles of incorporation/bylaws.

However, the company is not liable for illegal acts performed by its managers. For the liability for those acts, see 3.3 Legal Remedies against the Company’s Directors.

Also, in Brazil the legal framework did not welcome the “class actions” existent in the US and the UK legislation to require indemnification from the company. There is a similar institute, which is the Public Civil Action (Ação Civil Pública), which can normally be brought by the Public Prosecutor’s Office or associations authorised by law but are not used for the purposes to request this kind of indemnification.

If shareholders feel they are being harmed, they can always file a claim individually to the judiciary to guard their rights, based on the principles of civil liability. For those purposes, they will have to demonstrate that the conduct of the company has caused a damage to that shareholder. However, this kind of legal claim is highly unusual.

As discussed in 3.2 Legal Remedies against the Company, officers and directors are not personally liable for obligations assumed by the company by virtue of a regular management act. Officers and directors are personally liable when (i) they have acted under wilful misconduct or fault (even if within their duties), or (ii) violate the law or the bylaws (strict liability/lack of need to demonstrate wilful misconduct or fault). Thus, even if an act by officers or directors causes harm to the company, they shall only be personally liable if it is shown that their decisions were made in bad faith or through an unlawful act.

In those cases, the company has the obligation, after the shareholder’s vote took on a formal general shareholders' meeting, to file a civil liability lawsuit against the officers and directors, as the case may be, to recover the damages caused to the company or its assets. It is important to mention that, if the matter is not part of the shareholders' meeting original agenda, but is connected to any matter or topic that will be discussed or voted, it can be included in the extraordinary general meeting’s agenda at any time (previously or even during the meeting). The director(s) or officer(s) against whom the lawsuit could be filed will be impeded and must be replaced at the same opportunity.

In addition, the Brazilian corporate law also provides for an individual lawsuit to be filed by shareholders or third parties against members of the management, to recover direct losses for acts caused by those managers. In this case, there is no need for a previous formal approval from the general shareholders’ meeting or a minimum percentage that must be held by a shareholder.

For the purposes of liability, members of the fiscal council or committees created by the company’s bylaws are also considered members of the management and can be held liable in the aforementioned hypothesis.

The Brazilian corporate law establishes that controlling shareholders must be responsible (civilly and administratively) for any damages caused by abuse of the controlling power. In those lawsuits, in order to obtain indemnification, shareholders must prove the occurrence of the abuse and the damages caused as a result of this abuse, and this kind of evidence is very difficult to produce in practice.

In the case of illegal or abusive acts of the controlling company that cause damages to the controlled company, the filing of civil liability lawsuits to repair such damages will fall upon (i) shareholders representing 5% or more of the capital stock, or (ii) any shareholder, provided that he or she provides security for the costs and attorney's fees due, in case the action is dismissed.

In this case, the controlling company, if convicted, in addition to repairing the damage caused to the company and paying the attorney's fees and the court costs of the lawsuit, must pay the plaintiff a 5% premium, calculated on the amount of the compensation.

It is worth mentioning that this minimum percentage of 5% for the exercise of the aforementioned rights can decrease, depending on the amount of the capital stock of the company, as provided for in CVM Instruction 627/20 (applicable to publicly held companies only).

There is no specific legal remedy provided for shareholders against auditors in Brazil. However, the activities of auditors are inspected and monitored by the CVM. If the shareholders - controllers or minority shareholders - suspect any irregular activity carried out by the auditor, they can file a claim before the CVM and request the initiation of an administrative proceeding to investigate the auditor's activity.

Also, it is always possible for shareholders to file judicial claims against any person, based on the principles of civil liability. For those purposes, they will have to demonstrate that the conduct of the auditor has caused a damage to the shareholder in question. In addition, any fault-based liability of the auditor must be proven.

As discussed in 3.3 Legal Remedies against the Company’s Directors, officers or directors are personally liable towards the company if they cause damages to it and if it is shown that their decisions were made in bad faith or through an unlawful act.

As a general rule, the general shareholders' meeting shall decide if a lawsuit should be brought against the management. If the meeting so decides, it is up to the company to file the lawsuit as soon as possible.

However, in certain special situations, the Brazilian corporate law grants to shareholders legitimacy to propose legal measures on behalf of the company, with the objective of preserving the company's assets against losses caused by illegal acts of the management.

Thus, if the resolution is approved by the shareholder meetings and, within three months, the aforementioned civil liability lawsuit is not filed by the competent bodies of the company, any shareholder of the company may do so, proposing the action for the benefit of the company.

Also, in cases whereby the shareholders' meeting rejects the proposal to file that civil liability lawsuit against the managers, this action may also be proposed by shareholders representing at least 5% of the share capital. It is worth mentioning that this minimum percentage of 5% for the exercise of the aforementioned rights can decrease, depending on the amount of the capital stock of the company, as provided for in CVM Instruction 627/20 (applicable to publicly held companies only).

Judicial Proceedings

As a general rule, litigating in the judiciary can be a very long and burdensome procedure, and it not possible to define the outcome of those proceedings, since Brazilian judges are not often familiar with issues involving Brazilian corporate law and capital markets. Also, there are bureaucratic issues that must be considered, such as the difficulty in obtaining evidence which, as a rule, is held by the company itself or its managers, who may hinder or try to prevent the shareholder's access to documents which could serve as evidence. In addition, the system applicable in Brazil, which requires the losing party to pay the winning party's attorney's fees plus a reimbursement of the costs of litigation, may become an obstacle to the shareholder who considers taking legal action but runs the risk of losing the case and bearing its costs.

Arbitral Proceedings

Mainly due to the delay involved in judicial proceedings and the lack of technical expertise of judges to analyse corporate issues, many shareholders opt for an arbitration procedure to resolve conflict situations. In this respect, some listed companies listed in the special listing segments of B3 commit themselves to solve all of the conflicts involving the company, its managers and its shareholders through arbitration.

The arbitration is an objective and faster procedure, with experts involved acting as arbitrators. However, the high costs of an arbitration procedure may deter shareholders from resorting to this procedure.

Administrative Proceedings

For publicly held companies, there is the possibility of filing claims before the CVM to initiate an investigation against members of the management, controlling shareholders or even the company itself. Activist shareholders frequently use the CVM as a method to put pressure on the company’s management. The CVM is normally faster than the judiciary and the costs are not significant. However, the CVM does not have the power to require the accused parties to reimburse the company or its shareholders, nor to require the accused parties to carry out or to refrain from performing certain acts (unless they execute a Settlement Agreement under which the accused parties offer a reimbursement to the company and/or the shareholders as part of the deal and commit themselves to refrain from carrying out the alleged wrongdoing).