M&A in Brazil
- Brazil
- 11/19/2007
- Azevedo Sette Advogados
General Aspects
Mergers and Acquisitions are regular operations in Brazil. The Corporations Law (Federal Law # 6.404/76) and the Civil Code regulate the procedures for mergers, consolidations, spin-off, acquisitions and incorporations, among other issues.
You may do business in Brazil by…:
(a) opening a branch office;
(b) incorporating a Brazilian company (100% owned by foreign investors);
(c) investing directly in an existing Brazilian company;
(d) forming a joint venture with a Brazilian company or acquiring one;
(e) investing in the Brazilian securities market, and;
(f) trade your products directly in the Brazilian market ( import and export of certain products are subject to restrictions).
Previous steps to close a M&A; operation in Brazil
- Due Diligence of the target company;
- Letter of Intention and Contracts – Draft and negotiations.
Brazilian companies are more than 80% family-owned and managed by their owners. In larger companies there are professional executives. Mainly in the South and Southeast region (States of Sao Paulo, Rio de Janeiro, Minas Gerais, Paraná, and Rio Grande do Sul).
Negotiations in Brazil never follow a standard pattern and normally vary on a case-by-case basis. In small and medium-sized companies, owners conduct negotiations, while many larger companies have people trained for that purpose. In significant business negotiations the chief executive officer or chairperson of the board of directors may become involved assisting the company’s negotiations team in solving significant issues. Lawyers usually assist in the operation.
Contracts in Brazil are on a less formal basis than the extensive, signed agreements used in the United States.
Incorporating in Brazil
M&A; operations often require that the acquiring party incorporate a new company to use in the operation due to commercial or tax planning reasons.
There are minimum legal requirements for a foreigner to be a shareholder of a Brazilian company:
- Appointment of a representative resident in Brazil by means of a power of attorney, with powers to represent the company before public agencies and to receive service of process;
- Enrollment with Brazilian Federal Revenue (CNPJ);
- Foreign documents must be notarized and legalized before a Brazilian Consulate abroad and translated by a local public sworn translator into Portuguese.
The most common types of corporate forms that companies are organized under are: Limited Liability Company (Sociedade Limitada) and Joint Stock Corporation (Sociedade Anônima).
Main requirements applicable to both types of companies:
- 2 shareholders (in principle, both of them can be non residents, provided that a Brazilian resident representative is appointed);
- There is no minimum capital (except for bank, insurance and others);
- Officers must be Brazilian residents;
- Directors may be non Brazilian residents;
- Mandatory annual shareholders´ meeting;
- Mandatory publication of some of its corporate acts;
- Mandatory bookkeeping.
Mergers, consolidatios and spin-off operations
Mergers, consolidations, spin-off operations shall be submitted to a general meeting of the interested corporations.
The conditions of the mergers, consolidations, spin-off operations shall be set forth in a protocol, which shall be signed by the administrative bodies or partners of the interested corporations.
Purchase and sale of assets
The acquiring company may also purchase only the assets of a specific plant or company in Brazil.
The agreement for the purchase and sale of assets shall be registered with the local Board of Trade and published in the official gazette. Unless otherwise agreed in writing by the parties, the former owner of the assets sold may not compete with the acquiring company for a period of 5 years following the sale.
Foreign capital registration
The foreign acquiring company may also directly purchase shares of the target company in Brazil, without having to incorporate a new company in Brazil.
Brazil maintains a liberal posture towards foreign investment, with low restrictions to investments in most industries. Thus, most activities may be freely executed by companies belonging to foreign citizens or entities. Exceptions are expressly determined by Law, such as coastal shipping, domestic airlines, broadcasting, press, atomic energy production, ownership of lands, etc.
Distribution and remittance of dividends (including to non-Brazilian shareholders) are not subject to taxation.
Antitrust agency approval
As the case may be the merger or acquisition operation shall have to be subject to the Brazilian Competition Defense System that seeks to secure free competition without any frauds, guarding the probity the constitutional principles that are part of the economic order. This requirement will only be needed when the operation involves more than 400 million reais or more 20% of the market share of its respective products.
Applicable law and jurisdiction
The parties may elect the applicable law and jurisdiction.
The courts are the most used contractual dispute resolution mechanism in Brazil. However, the judiciary system is extremely lengthy and bureaucratic. The Federal Constitution in Brazil grants enforcement to any foreign judgment or foreign arbitration award that has been examined and confirmed by the Supreme Court of Brazil.
Brazil is a signatory of the Panama Convention of 1975, is in process of signature of the New York Convention but is not signatory of the UNCITRAL. Brazilian Federal Law 9.307/96 also regulates arbitration.
