Brazil descended 15 positions in the ranking Doing Business in 2020, taking 124th place in a list of 190 countries.[1] In its annual survey, the World Bank analyzes and classifies several aspects related to the regulation of business activity and the business environment of these nations. The downfall of Brazil was a cause for concern and prompted the issuance of the Provisional Measure No. 1,040/21, of March 29. Known as MP of the Business Environment, the text aims to improve the position of the country, raising its score in certain indicators, such as opening companies, obtaining electricity, protecting minorities, paying taxes and international trade.

Among the measures to protect minority shareholders, the following changes are highlighted in Law No. 6,404/76:

  • need for resolution at a general meeting on disposal or contribution to another asset company, if the value of the transaction corresponds to more than 50% of the value of the total assets of the company contained in the last approved balance sheet, and the conclusion of transactions with related parties that meet the criteria of relevance to be defined by the CVM;
  • amendment of the minimum period for the convening of general meetings in publicly held companies, which is now 30 days;
  • prohibition of the accumulation of positions of chairman of the board of directors and chief executive officer of the company; and
  • participation of independent directors in the composition of the boards of directors of publicly held companies.

Hundreds of amendments were submitted to the MP, among which is the amendment No. 17, which suggests the inclusion of provisions in Law No. 6,404/76 to allow plural voting, a matter that was not provided for in the original wording of the MP. Plural voting consists of the allocation of more than one vote per share of a given class of the share capital of a corporation. Currently, plural voting is expressly prohibited in Brazilian law, which provides for the rule of "one share, one vote", according to Article 110 of Law No. 6,404/76. This provision ensures a certain proportion between the participation in the share capital and the political rights linked to it.

In general, plural voting is a much discussed and controversial topic in corporate law. Through it, the holder is assured an influence on the company's decisions greater than its effective contribution to capital. It should be recognized, however, that this instrument can be important to reconcile the exercise of control of the company with the raising of funds for the development of activities, especially in newer companies, in which the figure of the founding and controlling shareholder is closely linked to the company’s market value. In addition, the prohibition of plural voting in Brazil is considered one of the reasons why some companies decide going public in other markets that allow the plural voting. Therefore, its adoption could lead to retention of investments in the country and greater competitiveness of our stock exchange. 

With regard to amendment No 17, we highlight the following provisions on plural voting:

  • General features: it is now allowed to create one or more classes of common shares with plural vote, subject to the limitation of ten votes per share, both in the closed company and in publicly held companies, provided that the creation of the class occurs before the negotiation of shares and securities in an organized market. That is, plural voting will not be allowed to companies that already have registered as publicly held companies before CVM.
  • Quorum for the creation of shares with plural vote and right of withdraw: the creation of shares with a plural vote would depend on the favorable vote of shareholders representing at least half of the votes (a) of the voting shares and (b) of preferred shares without or with restricted vote, at a special meeting. Dissenting shareholders are guaranteed the right to withdraw upon reimbursement of their shares.
  • Deadline (sunset clause): the plural vote would have a maximum limit of seven years, extendable only once for a period equal to or lower, with the approval of shareholders. The quorum of the extension would be the same as the creation of shares with plural vote, provided that the holders of the shares whose plural vote is intended to be extended should not vote.
  • Conversion of shares with plural vote into common shares without plural vote: a hypothesis applicable in the event of transfer of shares to third parties, except in cases where (a) there is an agreement with such third parties with respect to the joint exercise of voting rights, (b) the transferor remains as indirect holder of the shares and in control of political rights, (c) the third party owns the same class of shares with plural vote or (d) the transfer takes place in the fiduciary title regime.
  • Prohibited transactions: (a) incorporation, incorporation of shares and merger of a publicly-based company that does not adopt a plural vote in a company that adheres to the plural voting and (b) the partial spin-off of a publicly-held company without a plural vote for the incorporation of a company with a plural vote or incorporation of the spun-off portion into a company with a plural vote.
  • Resolutions in which plural voting will not be adopted: remuneration of directors and conclusion of transactions with related parties, according to criteria established by CVM.

The reports delivered by Congressman Marco Bertaiolli welcomed suggestions of the amendments to ensure greater transparency to minorities, including:

  • Permission to replace books in closed companies with mechanized or electronic systems (amendment no. 5);
  • Reduction of the deadline for convening a general meeting from 30 to 21 days, in first call (amendment no. 163); and
  • Inclusion of CvM as authorized person to propose public civil actions claiming damages to investors (amendment no. 211).

In addition, the drafting incorporated the plural vote, substantially in the terms of amendment No. 17, including the limitations of ten votes per share and the rule that allows publicly held companies to create plural-voting shares only before the capital opening. According to the reports, the plural vote would have an initial term of seven years, and could be extended for any period, subject to approval by the same quorum required for the creation of shares with plural vote, excluding the holders of the shares whose plural vote is intended to be extended. The right of withdrawal would also be guaranteed to shareholders who deviate from the resolution of a deadline extension.

The provisions on plural voting would not apply to public companies, mixed economy corporations, their subsidiaries and controlled companies.

The opinion was approved by the Chamber of Deputies (Câmara dos Deputados) on the night of June 23,2021 and proceeds for consideration by the Senate.

Without the intention of detailing the discussions on the advantages and disadvantages of the adoption of plural voting in Brazilian law and the other changes proposed in the wording of MP 1,040, it is necessary to reflect whether:

  • corporate law should be changed exclusively to improve the country's ranking in the ranking Doing Business;
  • such changes, in particular those of a structural nature, should be implemented via provisional measure, without a broad debate with market players and
  • in the specific case of plural voting, it would be up to the law to regulate issues such as the number of votes allowed per share, the duration period and their intransferability.

 

[1] The issues examined by the report include data on the degree of difficulty in (i) opening companies, including hiring employees; (ii) installation of the company in a given location (in addition to access to applicable licenses, registration of ownership and obtaining electricity); (iii) access to financial resources, including obtaining credit and protecting minority shareholders; (iv) day-to-day operation, such as tax payment, international trade and government contracting; and (v) business operation, including the Enforcement contract procedures and the handling of insolvency situations.