At a glance: M&A structures and regulation in Brazil

Structure and process, legal regulation and consents

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Private M&A acquisitions, involving the purchase of shares in non-listed companies or businesses, are more common than public M&A transactions in Brazil. The primary corporate entities involved on the target side are Brazilian limited liability companies (sociedades limitadas) and closely held corporations (sociedades anôminas or SAs). Buyers often consist of Brazilian investors (both individuals and entities), foreign investors and private equity funds.

Acquiring a privately owned company in Brazil typically entails negotiating and executing a share purchase agreement between the purchaser and the shareholders of the target company. In Brazil, the direct acquisition of equity interests is the preferred structure due to taxation considerations, rather than the acquisition of assets or businesses. Additionally, unlike in some jurisdictions, the acquisition of assets generally does not significantly differ from acquiring a company in terms of the succession of liabilities.

The typical process of an M&A acquisition begins with the execution of agreements, such as memoranda of understanding, letters of intent, term sheets and non-disclosure agreements (NDAs). These documents formalise the essential terms of the transaction, including the purchase price and signing conditions. The buyer’s advisors then perform accounting, business and legal due diligence on the target company to identify any existing or contingent liabilities. Subsequently, the parties negotiate and sign the share purchase agreement, which may include closing conditions. The typical timeframe for completion ranges from three to six months, although for larger target companies and complex transactions, the timeframe may extend beyond that duration.

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

M&A transactions in Brazil are not subject to specific regulations, but rather are governed by various legal frameworks. These include the Civil Code, the Corporation Law, the Capital Market Law, the Competition Law and specific regulations issued by public entities that oversee the market, such as the National Monetary Council, the Central Bank of Brazil and the Brazilian Securities Commission.

While there are no restrictions on choosing a foreign law to govern corporate agreements in Brazil, investors often prefer Brazilian law for acquisitions involving Brazilian-based target companies. This preference stems from the fact that enforcing obligations under foreign laws requires obtaining a court decision in the relevant jurisdiction and subsequently confirming it through Brazilian superior courts, which can be a time-consuming process.

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

According to the applicable corporate legislation, the ownership of a company’s shares by a shareholder is substantiated through the following means:

• for SAs: registration in the share registry book or a book entry share statement; and
• for limited liability companies: the articles of association serve as evidence.

The procedures to transfer legal title differ based on the type of company. In the case of Brazilian limited liability companies, the transfer of share ownership is accomplished by amending the articles of association and subsequently registering the amendment with the commercial registry. On the other hand, for Brazilian corporations, share ownership is transferred through the proper execution of share books. If the shares are book entry (less common in non-listed companies), a share transfer order is sent to the relevant financial institution acting as the bookkeeper, which then registers the change of ownership. These actions, involving both the buyer and the seller, generally occur during the closing process.

In Brazil, legal ownership of assets may be established by possession or, if applicable, through registration of ownership in the appropriate registry of real estate properties. Consequently, the transfer of legal ownership requires either the delivery of the assets or the updating of ownership records.

Distinctions between legal and beneficial ownership are generally not pertinent to the private acquisition or disposal of businesses and assets under Brazilian law.

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

In the absence of a contractual drag-along obligation specified in a shareholder’s agreement, the sale of individual shares by all shareholders is required to complete the acquisition of all shares in a company. It is worth noting that Brazil does not generally apply the legal squeeze-out procedures commonly found in other jurisdictions.

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

The parties possess the freedom to determine the inclusion or exclusion of specific assets in the purchase transaction.

Regarding liabilities, the following circumstances determine their transfer from the seller to the buyer:

• in the case of a business unit or going concern involved in the purchase transaction, liabilities arising from taxes, employees and commercial contracts may be attributed to the buyer; and
• if the transferred assets encompass contaminated land or assets that have caused the contamination, the buyer may assume liabilities resulting from environmental issues.

The extent of these liabilities relies on various factors, such as whether the seller will continue its operations post-transaction and if it possesses sufficient assets to meet its obligations thereafter.

To address these liabilities, the parties can incorporate representations, warranties and indemnity provisions into their asset purchase agreement. Such contractual provisions serve as the basis for reimbursements, indemnification and adjustments between the parties, but do not affect regulatory authorities or relevant third parties.

Typically, only consents and notifications related to the contractual obligations of the target company are required to achieve a corporate restructuring in preparation for an acquisition or disposal transaction.

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Typically, Brazilian law allows for the unrestricted transfer of all shares in a private company.  However, specific regulations apply to different types of companies.

For limited liability companies, the following regulations apply:

• transfers of quotas require an amendment to the articles of organisation;
• quotaholders can freely transfer their quotas unless opposed by quotaholders holding more than one-quarter of the company’s capital; and
• limitations on quota transfers are often specified in the articles of organisation or quotaholders’ agreement.

For corporations (sociedade anônima), shareholders can freely transfer their shares through the share transfer book, unless restricted by the bylaws or shareholders’ agreements.

When considering an acquisition, potential buyers should:

• verify if any liens or encumbrances restrict the transfer of shares;
• check if the company has contracts with change of control provisions; and
• obtain necessary regulatory or governmental consents, such as merger reviews.

Foreign ownership generally faces no general restrictions, except in specific sectors, such as:

• Brazilian media and broadcasting companies;
• aviation companies;
• certain healthcare activities limited to Brazilians;
• nuclear power exclusively controlled by the Brazilian government; and
• post office and telegraph services with foreign equity participation.

Some transactions may require approval from Brazilian antitrust authorities, based on the parties’ annual gross revenues.

Are any other third-party consents commonly required?

In Brazil, it is customary for the acquisition of a company to require the obtaining of consents related to the target company’s contractual obligations. These consents are typically regarded as a condition precedent to the completion of the transaction.

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Private issuance of shares is a relatively straightforward procedure. It requires the approval of the issuer’s corporate bodies (as well as the other filings and registrations that are common to listed companies).

A public issuance of shares must be approved by the issuer’s corporate bodies and by the Brazilian Securities and Exchange Commission and is subject to the other filings and registrations that are common to listed companies.

M&A transactions must also be notified to the Administrative Council for Economic Defence whenever they simultaneously fulfil the three legal requirements: 

• producing effects in the Brazilian market;
• meeting the two economic groups’ turnover thresholds (equal to or above 750 million reais and 75 million reais in the year before that of the deal); and
• being considered an ‘act of concentration’, which includes all M&A transactions, joint ventures and strategic alliances.