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: