New Brazilian Corporation Law

Co-written by Manoel Ignácio Torres Monteiro

On November 5th, 2001 Law No. 10.303 was published bringing important changes in the Brazilian Corporation Law (Law No. 6.404 of December 15th, 1976) and Law No. 6.385 of December 15th, 1996 (the Brazilian Securities Law). Said changes concern not only the privately- and publicly-held Brazilian corporations but also the Brazilian Securities Market.

The changes will undoubtedly benefit minority shareholders.

Firstly, it is important to point out the several rules as to when the new provisions will come into force vis-à-vis privately- and publicly-held companies.

Corporations ("Sociedades Anônimas") will have until March 5th, 2003 (one year after the effective date of the Law - 120 days after publication) to adjust their bylaws to the provisions thereunder.

The Tag Along right granted to minority shareholders of publicly-held companies corresponding to 80% of the purchase price offered to the controlling shareholder will not apply to state-owned companies undergoing privatization that have their Invitations to Bid Notes published until October 31st., 2001.

Any change in the type and number of shares resulting from the new provisions under the Law shall not entitle shareholders to exercise their right to withdraw, unless it is carried out until December 31st, 2002.

The voting: non-voting right ratio (which was reduced from 66% non-voting - 33% voting to 50-50%) of shares that companies can issue shall be applicable to companies incorporated after publication of the Law and to privately-held companies that apply for license to trade bonds and shares in the market.

The election of members of the Board of Directors by minority shareholders (shareholders with voting rights representing 15% minimum of the total voting stock and shareholders representing 10% minimum of the total issued stock) is limited to a list of three names, prepared by the controlling shareholder until the first General Shareholders' Meeting of 2005.

It is worth mentioning that a Brazilian corporation can be classified as a public trade company even though it has not issued shares into the market. Corporations that issue debentures, for instance, have to apply for a license as a publicly-traded company. In that respect, all the new rules applicable to publicly-traded companies will also be applicable to corporations that have been authorized to issue debentures or other bonds.

The most important changes brought by the new Law are...