8/6/2021
Recently, the Federal Senate approved, with amendments, Provisional Measure no. 1,040/2021, known as the Measure for the modernization of the business environment in Brazil, which, according to the Explanatory Memorandum, has the purpose of “improving the business environment in Brazil, as well as positively impacting the country’s position in the general classification of the World Bank Doing Business report”.
In this article, we will specifically address about the amendment no. 17 of the Measure, which proposes the inclusion of “plural vote” into the Brazilian Corporation Law (“Lei das S/A”), which is prohibited by the legislation and will have a profound impact on Brazilian corporate law.
The Brazilian Corporation Law provides the rule of “one share, one vote”, guaranteeing to the shareholder the right to vote based on the capital that the shareholder has contributed into the company, respecting a proportionality between capital invested and participation in the company’s decision making.
The Amendment no. 17 intends to include the instrument of plural voting, in which different voting numbers are granted among different classes of shares issued by a company, and the by-laws may provide, for example, that one class of shares is granted one vote per share and the other class two, three up to 10 votes per share. In this way, the shareholder owning plural voting shares could have superior influence over the company’s decisions, despite the shareholder contribution to the capital.
According to the text, already approved by the Federal Senate, the plural voting, among other characteristics, is allowed both for closed and publicly-held companies, provided that, in the case of publicly-held companies, its creation occurs prior to the trading of the shares on the stock market. The creation of a class of common shares with plural voting is limited to 10 votes per share and depends on the approval of shareholders representing: (i) half of the voting shares; and (ii) half of the non-voting preferred shares with restricted voting rights (if issued), being assured to dissenting shareholders the right to withdraw from the company the reimbursement of the value of their shares under the terms of the Brazilian Corporate Law. There is also a provision that plural voting may be in effect for a period of 7 years and may be extended only once for an equal or shorter period, subject to the quorum applicable for its creation, excluding the shareholders of the class whose plural voting is going to be extended. The amendment prohibits the adoption of plural voting in resolutions concerning the remuneration of the administrators of the Company and the execution of transactions with related parties as defined by the Brazilian Securities Commission (“CVM”).
The issue is controversial in the legal community, which questions the adoption of such instrument via provisional measure, without having a wide debate on its advantages and disadvantages and the rationale of the applicable provisions. The Brazilian Stock Market (B3 – Brasil, Bolsa, Balcão) had already expressed itself in favor of plurality voting, in order to make the stock market in Brazil more attractive because of the movement of several Brazilian companies that recently gone public abroad, since this institute is common in foreign jurisdictions. Therefore, the B3 understands that the flexibility brought by the institute would be an incentive for companies to go public in the country.
As mentioned, the Measure has already been approved by the Federal Senate with amendments and will return to the House of Representatives for further evaluation, and should be processed until next Monday, 08/09/2021, in order to avoid expiration.
Coauthors: Fernanda Pereira and Marilia Augusta Polachini
