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September 10, 2021

Dual-class share is now permitted in Brazil

Corporate Law and Foreign Investment

Enacted on August 26, 2021, Law No. 14,195 allows Brazilian corporations to issue dual-class shares.

Considered a global trend, countries like France, Italy, USA, Sweden, and Finland already authorize such mechanism, especially for startups and tech companies, particularly to allow their founding partners to remain as controlling shareholders even after investment rounds, including an IPO process and public offerings.

Through a dual-class share mechanism, it is possible for corporations to issue ordinary shares with greater voting power than others of the same class. In practice, this mechanism enables shareholders who hold a small representative portion of the share capital to exercise greater political power in the corporation.

The Law implemented amendments to the Brazilian Corporation Law (Law No. 6,404/1976) to allow each common share to carry up to ten votes each, allowing the exercise of controlling power with less of the majority of common shares (with voting rights).

The Law provides that this “supervote” may remain for a seven-year period, extendable for any additional period, if the majority of shareholders without the right to multiple voting decide in its favor at a general shareholders’ meeting. At the end of the original or extended period, dual-class shares will be automatically converted into traditional common shares, returning to have just one vote each.

Also according to the Law, only closely-held corporations or those that have not yet carried out their initial public offering of shares may adopt the dual-class share mechanism.

Please find below other relevant legal rules enacted by the Law:

  • Prohibition of incorporation, incorporation of shares and merger operations of a publicly-held corporation that does not adopt a dual-class share mechanism into a corporation that does it;
     
  • Prohibition of the spin-off of a publicly-held corporation that does not adopt a dual-class share mechanism for the setting up of a new company with the adoption of it, or incorporation of the spun-off portion into a company that adopts it;
     
  • Prohibition of the adoption of such mechanism for voting at the general shareholders’ meeting that resolves on the management remuneration and the approval of related-party transactions that meet the relevance criteria to be defined by the Brazilian Securities and Exchange Commission;
     
  • The bylaws of the corporation shall establish, in addition to the number of shares of each type and class into which the share capital is divided: the number of votes per share of each class of common shares with voting rights and the duration of the dual-class share mechanism, subject to the limit of seven years;
     
  • The new provisions on dual-class shares will not apply to state-owned companies their subsidiaries and companies directly or indirectly controlled by the Government.

 

Corporate Law and Foreign Investment Practice Area

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