Law 14.195/21 creates the Plural Vote, amends several provisions of the Corporations Law and introduces other legal modifications

PLURAL VOTE

With the new Law No. 14.195 of August 26, 2021, both common and preferred shares of any corporation may, subject to the rules set forth therein, be of one or more classes (as opposed to the previous restriction that common shares could have more than one class only in closely-held corporations).

In addition to the scenarios provided for by law, common shares may now also be of different classes due to the assignment of a plural vote, which may not exceed 10 (ten) votes per common share. The amendment of the bylaws in the part that regulates the diversity of classes, if not expressly provided for and regulated, will require the agreement of all holders of the affected shares.

In the case of publicly-held corporations, the creation of the share with plural voting must occur prior to the trading of the company’s shares on organized securities markets, whereby the maintenance of more than one class of common shares is prohibited, except for the adoption of the plural vote.

Unless a higher quorum is not required by the bylaws, the creation of a class of common shares with plural voting depends on the favorable vote of shareholders representing: (i) at least half of the shares with voting rights; and (ii) at least half of the preferred shares without voting rights or with restricted voting rights, if issued, gathered at a specially convened meeting. Shareholders who do not agree with the creation of this class of shares will be entitled to withdraw from the company upon reimbursement of the value of their shares, unless such matter is already provided for or authorized by the bylaws.

It is important to emphasize that, for the approval of matters whose quorums are expressly provided for in the applicable legislation, based on the percentage of shares or share capital and without mentioning the number of votes cast by the shares, the calculation must disregard the plurality of votes. Furthermore, the Law establishes that the Brazilian Securities and Exchange Commission (CVM) must prepare and make public the appropriate guidance material for market agents, to list the matters whose quorum will not be affected by plural voting.

The bylaws may also stipulate the end of the term of plural voting conditional on an event or a term. Its initial term will be up to 7 (seven) years, extendable for any term (provided that the new rules regarding the deliberation quorum are also observed for the approval of the extension; and the holders of shares of the class whose plural vote is intended to be extended are excluded from voting). Also, in this case the rights provided to dissenting shareholders will be assured.

Shares with plural voting will be automatically converted into common shares without plural voting in the event of (i) transfer, in any capacity, to third parties (except if the seller indirectly remains the sole holder of such shares and in control of the political rights conferred by them; if the third party holds the same class of shares with plural voting sold to it; or if the transfer takes place under the fiduciary ownership regime for the purpose of setting up a centralized deposit); or (ii) the shareholders’ agreement or contract, between holders of shares with plural voting and shareholders who are not holders of shares with plural voting, provide for the joint exercise of voting rights.

As a restriction, the Law expressly prohibits the incorporation and/or merger of publicly-held companies traded on an organized market that do not adopt plural voting by a company that adopts plural voting, as well as the spin-off of a publicly-held company traded on an organized market that does not adopt plural voting, to incorporation of the spun-off portion into a company that adopts it or for the constitution of a new company with the adoption of a plural vote.

In any case, the Law establishes that plural voting will not be adopted in general meeting resolutions that resolve on the remuneration of managers or the execution of transactions with related parties that meet the relevance criteria to be defined by the Brazilian Securities and Exchange Commission.

The provisions relating to plural voting shall not apply to public companies, mixed capital companies, their subsidiaries and companies directly or indirectly controlled by the government.

 

FOREIGN ADMINISTRATORS

The Law changed the wording of article 146 of the Corporations Law, expressly providing that only natural persons may be elected as members of the management bodies, with the taking of office of an administrator resident or domiciled abroad subject to the constitution of a representative resident in Brazil, for a period of at least 3 (three) years after the end of the term of office of the administrator. Thus, the previously existing express provision that the directors should be resident in the country was excluded, and the obligation of appointing an attorney-in-fact becomes applicable to all administrators and not just directors.

 

TERM FOR THE CALL OF GENERAL MEETINGS IN PUBLICLY-HELD COMPANIES

In a Congress-supported amendment to the original content of MP 1040 (which gave rise to Law No. 14,195), which provided for a 30-day advance period for calling General Meetings in publicly-held companies, Law No. 14,195 changed the deadline for calling General Meetings in publicly-held companies to 21 days in advance, when referring to the first call, and to 8 days in advance, when referring to the second call.

Despite the reduction in the notice period, the legislation grants powers to the Brazilian Securities and Exchange Commission so that it can reasonably determine the postponement of general meetings of publicly-held companies, when such regulator considers that the information made available for the resolution of matters contained in the agenda of the shareholders meeting is insufficient.

 

COMPETENCE OF THE GENERAL SHAREHOLDERS MEETING

With regard to matters within the exclusive competence of the general meeting, the Law changed the wording of item IX (authorizing managers to declare bankruptcy and request judicial reorganization) and introduced a new item X (to resolve, in the case of publicly-held companies, on the entering into transactions with related parties, disposal or contribution of assets to another company, if the value of the transaction corresponds to more than 50% (fifty percent) of the value of the company’s total assets included in the last approved balance sheet).

 

EIRELIs

The Law also established that individual limited liability companies (EIRELIs) will automatically be transformed into one-person limited liability companies, regardless of any change in their articles of incorporation.

Demarest’s Corporate Law team is available to provide further information or clarification on the new Law, as well as other related matters.