1. Does your legislation contain any special regulation regarding the capacity of the parties to a contract? Is it necessary to produce any formal documents to attest the capacity of the parties?

Yes. As regards individuals, the general rule regarding capacity is given by Article 9 of the Brazilian Civil Code (hereinafer “CC“), approved by Law 3071, of 1st January 1916, which establishes that as of the age of 21 years old an individual becomes capable to all civil acts. There are, of course, exceptions to this general principle. Amongst the same, the individual who is over 16 and under 21 years of age may serve as a witness (Article 9, number 1 of the CC) as well as act as an attorney-in-fact (Article 1298 of the CC). It is also important to note that minority can end, provided that the person is at least 18 years old, by emancipation, granted by the father, the mother or by judicial order (Article 9, first paragraph, number 1 of the CC). Any identity document, such as passport or identity card will serve as proof of identity and the same must be referred to in the agreement. The same applies to witnesses.

If the party who executes the contract is a company, then the agreement must be signed by the company´s legal representatives or attorneys-in-fact, as regularly appointed in accordance with the Company´s Articles of Association, By-laws, shareholders in a general meeting or directors. It is often necessary in a transaction to produce the respective document proving the representation powers of the individual and such document will be the relevant corporate act duly registered at the competent Commercial Registry or the power of attorney appointing the attorney-in-fact, duly registered at the Notary Public or Civil Registry of Deeds and Documents.

If the contract or power of attorney is executed outside Brazil, then, to produce legal effects in Brazil, such documents must be signed before a Public Notary and subsequently legalised at the Brazilian Consulate with jurisdiction.

2. Does your legislation provide for special rules in case of acquisition agreements concerning a company, as opposed to provisions concerning a purchase contract in general? Are there special rules which application might depend on the company´s activity?

The Brazilian Civil Code contains the rules applying to purchase and sale contracts in general (Article 1122 of the CC and following), which are the basis for the sale of assets.

The Brazilian Corporation Law (number 6404, of 15th December 1976) contains the rules to be observed in case of acquisition of shares of public companies (Article 29, sole paragraph); acquisition of control of a company that depends on governmental authorisation to operate (Article 255) and acquisition of control by means of a public offer (Article 257).

Special rules will apply if the sale of goods or services are to be made to the government or public companies. Law 8666 of 21st June 1993, as amended by Law 8883 of 8th June 1994 establishes that every contract between the government, whether at federal, state of municipal levels, as well as public agencies, and a third party must be preceded by a bid.

Finally, it is important to note that the Brazilian Privatisation Program, which is regulated by Law 9491, of 11th September 1997, contains specific rules applying to the purchase and sale of the related companies.

3. Does your legislation contain special provisions on acquisition agreements? In particular, does your legislation distinguish between acquisitions by way of a share deal and by way of an asset deal?

Brazilian legislation distinguishes between acquisitions by way of a share deal and by way of an asset deal. The rules applying to such cases are mentioned in the laws referred to under question 2 above.

4. Which is the validity of a letter of intent or a Memorandum of Understanding? Can you have “binding” and “non biding” Letters of Intent or MOU?

In Brazil, letters of intent or memoranda of understandings are utilised. However, in view of the fact that under domestic law an obligation to contract or even a business proposal is binding (Article 1080 of the CC), letters of intent or memoranda of understanding are not advisable.

Under Brazilian law, a default under a memorandum of understanding will subject the defaulting party to damages and lost profits, to which one should add court fees and legal costs. Alternatively, a party to a contract may opt for asking the court for specific performance, aiming at the execution of the definitive contract.

5. In the absence of specific clauses in the agreement, would defects in assets of the target company be considered as defects in shares?

No. However, the transaction with shares may be affected by the defects in assets of the target company. In this regard, please see answer to question 8 below.

6. Is it compulsory to register the transfer of shares with any special registry? Who is in charge of the registration? Is there any formality (notary deed, public officer document, etc) required as to the validity or enforceability of the purchase?

Brazilian law provides for several types of companies. The most frequently used corporate forms are the limited liability company by quotas (Sociedade por Quotas de Responsabilidade Limitada – “Limitada”) and the company by shares (Sociedade Anônima – “S.A.”). This is due to the fact that in both cases the partners have their liability limited to the amount of their respective contributions to the paid up corporate capital.

Comments, in the present question, will be made in relation to these two types of companies.

The Limitada

The Limitada is established by a contract called “Contrato Social” (hereinafter “Articles of Association“) and it has only one class of partners, the limited liability quotaholders.

The smallest fraction of the Limitada´s capital is denominated “quota”. The Articles of Association establish the corporate capital, the amount of quotas it is divided into and identity of the quotaholders. The quotas do not exist independently of the chart, i.e., they are not represented by certificates. A Limitada must have at least two quotaholders.

Because the ownership and the number of quotas held by each quotaholder are written into the Articles of Association, any transfer of legal titles to the quotas thereof will result in an amendment to the Articles, under the signature of quotaholders representing the quorum for corporate decisions set forth in the Articles or, when silent, of quotaholders representing the majority of the capital of the company, in addition to, of course, the signature of buyer and seller.

An amendment to the Articles of Association is, therefore, the only document that proves that a quotaholder´s holding of quotas in a Limitada has been assigned and transferred to another party. The amendment does not need to be executed before a Notary Public, as in some jurisdictions, and is normally done privately. After the amendment is signed, it must be registered at the Commercial Registry with jurisdiction.


An S/A is fundamentally a commercial legal entity, with its capital stock represented by shares which are embodied in certificates. The S/A is governed by Law 6404/76.

The capital of a Brazilian S.A. is divided into shares representing part or fractions of the share capital. They may be common, preferred or fruition shares, depending on the rights they confer to the holders.

Common shares entitle the holder to common or essential shareholders rights; preferred shares have special rights of a financial or political nature and the fruition shares result from the amortisation of the common or preferred shares.

All the above shares must be registered as well as any transfer or issue of the same. Their ownership is formalised with the registration of the name of the shareholder in the nominative share register book. Brazilian law does not permit bearer shares.

The S.A. has three registers/books:

(i) share transfer book;

(ii) nominative share register book; and

(iii) share certificate book.

The share transfer book has to be signed by both buyer and seller and all books and registers must be updated to reflect new shares and the transfer of shares to the new owner. The books must be registered before the Commercial Registry of the place where the Company´s headquarters are located.

Book entry shares (“Ações escriturais“) are not represented by certificates. The financial institution in charge of keeping its client´s position must however keep appropriate records of the same. S.As. updating this type of shares do not need the share certificate book.

7. Does your legislation provide for the possibility to include any limit or prohibition to the transfer of shares in the articles of association of the Company ?

Limitations regarding the transfer of shares are possible, both in the case of a Limitada as well as of an S.A. . Such limitations occur: (i) within the scope of Article 36 of Law 6404/76, which provides that the company´s by-laws may impose restrictions on the transfer of registered shares, provided that the said restrictions are defined in detail and do not preclude their negotiability nor subject the shareholder to the arbitrary decision of the administrative bodies of the company or of the majority of the shareholders; and (ii) in analogous clauses (put and call, for example).

8. Does your legislation provide for the right to terminate a purchase agreement in the event of non-payment of the purchase price or if there are defects in the shares or assets of the target company?

If the price is not paid, then the purchaser is in breach of the contract and the other party can ask for its termination, with payment of damages, in accordance with the Sole Paragraph of Article 1092 of the CC.

If there is a defect in the assets or shares of the company sold, and if the seller was aware of such defects, then the seller is obliged to return the payment received to the buyer and will be liable for payment of damages; if however the seller was unaware of the defect, then he will return to the buyer the price paid as well as the expenses incurred with the contract only (Article 1103 of the CC).

In practice, the parties may prefer, instead of applying the above mentioned rules of the CC, to re-negotiate the contract, depending on the nature or extension of the defects of shares or assets. Such negotiation may involve and result, for example, in a reduction on the purchase price.

9. In order to be fully effective, could the termination simply be notified to the other parties involved or has it to be declared by the Court?

Contracts normally contain a clause stating the respective applicable termination conditions. Typically contracts will also contain a clause stating how notification to the other party must be given in the event of termination, and this must be followed.

If termination occurs according to the conditions set forth in the agreement and the other party is notified with observance of the provisions therein, regarding notification, the contract lawfully comes to an end and the judicial interference is not necessary, unless one of the parties refuses to take any steps necessary to the actual termination.

10. Is it advisable that a purchase agreement includes specific provisions that deal with any problem relating to the appearance of defects in the assets or shares purchased?

Yes. Typically share purchase agreements will contain a clause stating that the shares which are being sold are fully subscribed and paid, and are absolutely free and clear of any liens, pledges, encumbrances, attachments, etc., including fiscal obligations, social security and/or others.

Transfer of assets agreements will typically contain a clause safeguarding the buyer against eviction by assertion of a third party´s paramount title or through legal proceedings and the parties may increase or decrease such guarantee given to the buyer (Article 1107, sole paragraph, of the CC). However, even if the contract contains a clause excluding the liability of the seller in the case of eviction, which is possible according to Article 1107 of the CC, if eviction occurs the buyer will be entitled to recover the price paid, if he was unaware or did not undertake the risk of eviction (Article 1108).

Seller should hold buyer harmless in respect of all claims, losses, etc. incurred by buyer as a result of or in connection with any material breach of the contract or of the representations and warranties. Furthermore, seller should hold buyer harmless against all claims and losses resulting from tax and labour liabilities that may be inherited by buyer as well as outstanding liabilities that could render the sale of assets voidable.

11. Under what circumstances a party to an acquisition agreement may be entitled to claim for damages?

The general rule applicable is that of Article 1056 of the CC which states that if the debtor does not fulfil his obligation in the manner and time agreed, he is liable for damages.

If a party to an acquisition agreement is in default and the other party under the agreement party suffers damages as a result thereof, the party not at fault will be entitled to claim damages from the defaulting party (Article 1092, sole paragraph, of the CC), to cover the defaulted party´s losses as well what he reasonably failed to gain (Article 1059 of the CC).

12. Is there any limitation to the amount of damages that could be claimed? Is it common to include thresholds for the purchaser to raise claims in the purchase agreement?

In case of a default under a sale and purchase agreement, the general rule of non-execution of obligations (payment if losses and damages shall govern), as determined by Article 1056 of the CC, will apply.

Losses and damages may comprise that which the creditor has lost and the profits which he forfeited (Article 1059 of the CC). Losses and damages may comprise only what the creditor has effectively lost and refer to profits directly arising from the non-execution of default (Article 1060 of the CC)

It is common to stipulate in the agreement a penalty clause (Articles 916 of the CC and following) of which the value cannot exceed that of the main obligation.

Finally, it is also possible to include a threshold on the amount that can be claimed as damages.

13. Is there any time limit to bring an action claiming damages? If yes: are there different time limits on the type of infringement or the matter at issue?

In Brazil, the determination of the prescription term will depend on the nature of the remedy available to the party who suffered the damages to claim compensation. Some guidelines include the following:

i. if the damages are caused in circumstances which allow the aggrieved party to claim compensation under the Consumer Protection Code (including product liability), whether in a contractual relationship or not, the right to claim prescribes after five years, the term beginning on the date which the aggrieved party gains knowledge of the damage and its origin (Article 27 of Law 8078, of 11th September 1990);

ii. if the damages are caused in circumstances allowing the aggrieved party to claim compensation under the Brazilian Aviation Code (Articles 316 to 321 of Law 7565, of 19th December 1986), the right to claim damages prescribes after two years and, exceptionally after three years, in the event that the interested party proves that it did not have knowledge of the damage or that the identity of the party responsible for the same was unknown ;

iii. if the remedy available to the aggrieved party is a personal action (whether contractual or not), including claims relating to civil wrongs, negligence, the relevant prescription term is twenty years (Article 177 of the CC); and

iv. if the remedy available to the injured party is an action “in rem”, relating to real estate ownership and related rights, the relevant prescription term is either ten (for claims between present persons) or fifteen years (for claims between absent persons ) (Article 177 of the CC).

The action to annul or rescind contracts, in cases of coercion, error, simulation, and fraud prescribes in four years (Article 178, paragraph nine, number V of the CC).

14. Is there any special period for the limitations of

* Tax liabilities?

* Labour liabilities?

* Environmental liabilities?

Tax liabilities : Article 173 of the National Tax Code (“Código Tributário Nacional- “CTN”) sets forth the period of five years from the date of the taxable event for the filing by the tax authority of the lawsuit to collect taxes due and not paid; if no action is filed within such period, the statute of limitations expires.

Labour Liabilities: with respect to employer liability, Article 7, clause XXIX of the Brazilian Constitution of 1988 can be translated as follows:

“Article 7: The rights of urban and rural workers, among the others that guarantee the improvement of social conditions are:

xxix: the right to file suit, on the basis of rights accrued under the work relationship, with a limitation period of:

a) in the case of urban workers, five years from the event giving rise to the claim, with a limit on this period of two years once the worker´s contract has been terminated;

b) in the case of rural workers, two years after the termination of the contract.”

Environmental liabilities: the remedy available in respect of damages caused to the environment, including environmental pollution, is a claim called a “popular action”. In this regard, Article 5, clause LXXIII of the Brazilian Constitution of 1988 can be translated as follows:

“Article 5: Everyone is equal before the law, without any distinction of any kind, thereby securing for Brazilians and foreigners alike, who are domiciled in Brazil, the inviolability of the right of life, liberty, equality, security, and property, under the following terms:

LXXII: any citizen may file a “popular action” with the purpose of annulling a prejudicial act done to the commonwealth or to a state entity, to the administrative morality, to the environment, and to historic and cultural sites, and plaintiffs filing such actions, except those who do so in bad faith, will not be liable for the judicial costs in pursuing such a claim, nor for the prevailing party´s legal fees.”

Article 21 of Law 4717 of 29th June, 1965, which regulates popular actions, sets the limitation period for filing those actions within five years from the date when the cause of action arises.

14. Do acquisition agreements include specific clauses aimed at guaranteeing the purchaser the truth of the representations contained in the agreement? In particular, is it common for instance to deposit a part of the price as a guarantee for any hidden liabilities that might arise after the acquisition agreement? What range or percentage of the price are customary left in escrow and for what range of time?

Acquisition agreements will normally contain a clause stating the seller will indemnify the buyer in case of a breach of a warranty.

Escrow agreements, as used in Anglo-Saxon systems, are not foreseen by Brazilian legislation.

However, it is normal that the purchaser receives a guarantee from the seller under an acquisition agreement linked to the fulfilment of the seller´s obligation and the forms of guarantee are specifically provided by the CC. It is also common for contracts to include negotiation alternatives for the case where a defect in shares or assets arise, such as a clause foreseeing a partial deduction of the price, in case that happens.

16. Are due diligences common? Is it customary to make the final price subject to the results of a due diligence?

Due diligences are very common in Brazil and it is also common to make the final price subject to the results of the due diligence exercise.

17. Are disclosure letters ever used in relation to warranties in acquisition agreements in your country?

Disclosure letters are used when the contract of purchase and sale is governed by the law of a foreign jurisdiction (English, for example) where disclosure letters are common. Although they are not part of the Brazilian legal system, they must be reviewed by the Brazilian lawyer so as to ensure that a breach thereof will enable the aggrieved party to apply for the enforceability of the contract in Brazil.

18. To what extent are restricted covenants on vendors common in your country and in practice how enforceable are they?

It is possible to insert restrictions on competition within a reasonable time period and reasonable geographic definition. Although they are not uncommonly seen, their validity may be discussed, depending on the extension of their terms, as the Brazilian Constitution defends the free competition.A. LITIGATION

1. Are the ADRs (Alternative Dispute Resolutions) proceedings used in your country?

Brazilian law regulates arbitration but the same is not commonly used (see answer to question 3 below).

2. How long does it take to enforce the decision of a legal proceeding in your country?

The term may vary according to whether there is a stay of the execution, but it is fair to say that a judicial decision is normally executed within less than a year as of the date the decision becomes res judicata.

3. Is arbitration a widely used procedure to settle disputes? Is there an Arbitration Act?

In spite of some significant developments, which took place during the last few years, arbitration is only used in exceptional circumstances in Brazil.

Brazil has an Arbitration Act: Law 9307 of 24th November 1996.

Until very recently, for foreign arbitration awards to be enforced in Brazil, ratification by the local courts and ratification by the Brazilian Supreme Court (Supremo Tribunal Federal – “STF”) were necessary. However, on 27th December 1995 Brazil ratified the Panama Convention on arbitration, which eliminated the necessity of ratification of an award by the local courts in most cases. Furthermore, in accordance with new legislation on arbitration (Law 9307/96, above mentioned) international awards are dependent on ratification by the STF only.

4. Are there special requirements as to the arbitration clauses contained in acquisition agreements be fully valid and biding?

The arbitration award may be based on submission clauses, whose validity will survive the relevant agreement, but there are no special requirements foreseen in the law in connection to such clauses.

5. Is it possible to bring an action before the Court appealing against an arbitration award given on a matter subject to arbitration under the acquisition agreement?

Once the foreign arbitration award has been ratified by the Supreme Court it can be enforced in Brazil and it is not possible to appeal against it.

The Arbitration Law specifically provides for the instances where the Defendant, in a process of ratification of the foreign award before the STF, can challenge the award, as follows: (i) the parties were incapable; (ii) the submission clause was not valid in the law regulating the contract; (iii) the party was not notified of the arbitrator designation on the arbitration proceeding, or the adversarial system has been violated; (iv) the arbitration award has been given outside the limits of the convention; (v) the arbitration´s institution has not respected the submission clause or the arbitration agreement; (vi) the arbitration award has not become binding upon the parties or has been suspended by a court of law in the country from which it emanated. The ratification will also be denied if the STF finds that, according to Brazilian law, the object of the dispute could not be resolved by arbitration or if the decision offends the public order.

6. How easy is to enforce in your country legal judgements or arbitration awards from foreign courts ?

For a foreign judicial judgement or arbitration award to be enforced in Brazil, it must first be ratified by the Supreme Court.

For the purpose of the relevant Brazilian laws, “judgement” means a

final decision of a civil, commercial or criminal nature, rendered by a

judge or court of justice, pursuant to the due process of law in the

jurisdiction of origin.

Prevailing Brazilian rules on enforcement of foreign judicial decisions are contained in the 1988 Federal Constitution; the Law of Introduction to the Civil Code; the 1940 Penal Code, the 1973 Civil Procedure Code and the 1941 Penal Procedure Code.

Foreign judgements are ratified in Brazil by the STF upon the fulfilment of five requirements, as follows: (i) foreign court having jurisdiction over parties and matter; (ii) proper summons; (iii) final judgement; (iv) legalisation and sworn translation; and (v) compliance with basic principles.

Ratification will be denied if Brazilian courts have exclusive jurisdiction on a matter, which occurs in case of property located in Brazil and probate of assets in the country. Defendants resident in Brazil must be properly summoned by means of rogatory letters. An affidavit will have to be presented to the effect that no appeals are possible in the country of origin of the judgement. The decision must be legalised by the Brazilian consulate having jurisdiction over the area and translated by a sworn translator in Brazil. The judgement cannot violate Brazil´s national sovereignty, public order or morality.

7. Are there any restrictions as to law and for jurisdiction applicable to a contract?

Under a contract which elected a foreign court, Brazilian courts have concurrent jurisdiction over defendants domiciled in Brazil and on disputes resulting from obligations to be performed in Brazil, as well as on matters arising from acts which occurred on the Brazilian territory.

Election of foreign law to govern local obligations is possible as long as it does not violate Brazil´s public order.


i. Does your legislation regulate take-over bids?

Take-over bids in Brazil are subject to Law 6404, of 15th December 1976 (the Brazilian “Companies Law”), Law 6385, of 7th December 1976 (the “Securities Law”) as well as to the regulations issued by the Securities Commission (Comissão de Valores Mobiliários – “CVM”).


1. Are there any cases where take-overs are compulsory under your legislation? If yes, what are these cases?

Brazilian legislation presently does not contain provisions applying to the compulsory acquisition of shares (of minority voting shareholders or others) by a bidder who is in the process of acquiring the control of a company (take-over bid).

Until 1997, Law 6404/76 determined that, in the case of sale of the control of a company, the controlling shareholder would be under the obligation of asking for CVM´s authorisation to effect the sale. There also existed an obligation, imposed to the bidder, to make a public offer for the purchase of shares belonging to minority shareholders, so that they were afforded the same treatment as the controlling shareholders. This situation was altered by Law 9457, of 5th May 1997, approved to foster the Brazilian privatisation process, and today it is no longer compulsory to make a public offer to minority shareholders with voting rights in the case of the sale of the company´s control.

We note that there are, however, cases of compulsory acquisition offers foreseen by Brazilian law, which fall outside of the scope of a take-over bid (i.e., acquisition of control), as follows:

a. The first case is regulated by CVM´s Instruction 299, of 9th February 1999. This regulation determines that the purchaser or bidder will be under the obligation of making an offer for the acquisition of shares belonging to a block of minority shareholders in a listed company when the following concurrent conditions occur:

(i) A bid for the purchase of common or preferred shares in a given company is made (the offer being previously approved by the CVM and published) and the bidder is already a controlling shareholder whose own shareholding, of the same type or class of shares that are the object of the offer has, by the time the operation is taking place, already been increased, effectively or potentially, with 10% (ten percent); and

(ii) minority shareholders representing, together, more than one third, by type or class, of the Company´s issued shares , demonstrate their intention to sell their shares to such bidder.

In that case, the bidder must extend the offer which was originally made to other shareholders to such minority shareholders, under the same conditions as in the case of the original offer and pursuant to a further notice that will apply to the said minority shareholders.

If the bidder does not wish to buy the stake belonging to the minority shareholders, then he will have the option of abandoning the deal and will have to notify the public accordingly.

b. The other case of a compulsory offer of acquisition under Brazilian law relates to the closing of capital of a public company and is regulated by CVM Instruction 229, of 16th January 1995. According to this regulation, the cancellation of a registration of a public company will be effected by CVM if (i) it is approved by the Company´s General Meeting specially convened to discuss this matter, and is approved by shareholders, with or without voting rights, representing 51% of the share capital; and if (ii) minority shareholders, holding 67% of the shares in circulation in the market accept the public offer of acquisition made by the controlling shareholder, or expressly agree with the cancellation of the registration. The above mentioned Regulation contains the rules applying to the prior notice, which has to be given to shareholders so as to inform them of the intention of closing the Company´s capital and of the public offer for the acquisition of their shares.

1. Is one of these cases the fact of reaching or holding a fixed percentage of the capital of a company?

a. How is the percentage calculated?

b. Is it linked to the idea of control of the company?

As mentioned, Brazilian law does not regulate compulsory take-over bids (i.e., acquisition of control).

However, as explained above, a controlling shareholder may be under the obligation of making a public offer for the acquisition of shares under the conditions described in letter a, in the answer to question 1 above. In those circumstances, the fact that a fixed percentage is reached by the controlling shareholder is indeed one of elements which determines the occurrence of a compulsory bid.

The reaching of the percentage above mentioned is verified by either taking into account the controlling shareholder´s position on the date of the publication of the CVM´s instruction regulating the matter or of his original holding.

1. On which securities must take-overs be made (only those listed or all of them?)

As above seen, compulsory take-overs are not regulated in Brazil.

In relation to the cases mentioned under letters a and b, in question 1, which relate to public offer of acquisition outside the scope of a take-over, the offers are made on shares of listed companies only.

2. Who are the addressees of take-overs?

The addressees of a non-compulsory take-overs by means of a public offer are the holders of voting shares in listed companies (Article 257 of Law 6404/76).

3. Is there any specific authority in charge of supervising take-over proceedings? If so, is it vested with large controlling powers?

Yes, the authority in charge of supervising take-over proceedings is the CVM.

Amongst other functions, the CVM is in charge of controlling the activities and services of the Brazilian capital market, the disclosure of information relating to this market, the persons who participate in it and the securities negotiated therein (Article 8 of Law 6385 of 7th December 1976).

4. What is the procedure to be followed in order to present a take-over?

a. Are there rules on public communications?

b. Is it compulsory to present a brochure with the details of the shares and/or the company involved?

c. What is the minimum information to be included in the brochure?

It is important to repeat that the rules mentioned below relate only to non-compulsory take-over bids.

Brazilian law determines that, until the offer is published, the bidder, the underwriter, the Stock Exchanges and the CVM shall keep the take-over bid secret (Article 260 of Law 6404/76). This rule is aimed at maintaining the stability of the market and to avoid artificial conditions influencing the offer.

The acquisition, by a listed company, of the control of another company is conditional upon the approval of the buyer´s general meeting. (Article 256 of Law 6404/76)

The public offer must be made by means of an announcement, published in the press, and the respective document, which must be executed by the offeror, the offeree and a financial institution that will guarantee the payment, must contain the following details:

I – the minimum number of voting shares that the offeror is proposing to acquire and, if applicable, the maximum number;

II. the price and conditions of payment;

III. the fact that the offer is subject a minimum number of shareholders accepting it and the pro rata apportionment amongst them, if they exceed the determined maximum number;

IV. the proceedings that must be adopted by the shareholders who accept the offer in order to express such acceptance and to effect the transfer of shares;

V. the period of validity of the offer, which cannot be less than 20 (twenty) days;

VI. information on the offeror.

The CVM must be informed of the offer within 24 (twenty-four) hours of its publication.

The above rules are contained in Article 258 of Law 6404/76.

The acceptance of the public offer for the acquisition of control shall be made by means of irrevocable orders of sale given to the financial institutions or the “over the counter” market entities that are mentioned in the offer instrument .

Offers and acquisitions described under letter a, in question 1 above will be subject to the following rules:

. the offer made to shareholders shall be submitted to CVM, for prior approval;

.the term of the offer cannot be less then fifteen days;

. the offer will be published in the papers normally utilised by the company for other corporate publications;

. the offer may be conditioned to a minimum number of shareholders accepting the offer;

. if the offer is limited to a maximum number of shares, that a proportional allotment will be made amongst those shareholders accepting the offer;

. if minority shareholders holding, jointly, more than one third of the shares demonstrate their intention to accept the offer, then the bidder must publish, in the same papers in which the original offer was published, a notice containing the information that the offer will have an additional term of 15 days. In that case, as seen in question 1 above, the offeror will be under the obligation of acquiring the shares of those shareholders who demonstrate their intention to dispose of their holdings, or will have to abandon the deal.

In the above mentioned case, the instrument whereby the offer is made, or the prospectus, shall contain, at least, the following information:

a. name, details and areas of activity of the offeror;

b. the company´s shareholdings, with a quantitative and percentile discrimination of the shares representing the company´s control, those which are held by public entities and those which are held in the company´s treasury;

c. if an operation concerning the transfer of control is happening, the respective estimated values and conditions thereof;

d. prices, features and conditions of the proposed deal;

e. the minimum number of shares that the bidder intends to acquire, and, if applicable, the maximum number;

f. whether the offer is conditional to a deal regarding the transfer of control, and the specificity of such condition;

g. the procedure to be adopted by the shareholders so as to accept the offer and effect the transfer of their shares;

h. the term of validity of the offer as well as the date and further clarifications regarding the auction;

i. the average shares quotation during the last six months at the Stock Exchange or at the over the counter market;

j. the reasons and objectives for the offer;

k. social object and future plans of the issuer;

l. the bidder´s statement regarding his intention to promote, or not, the cancellation of the registration, as a listed company, of the issuer;

m. a statement from the financial institution regarding the ownership of the shares issued by the Company or regarding the administration of the securities issued by the same. In case the financial institution is the owner or administrator of the shares in respect of which the offer is made, it must also inform its intention of accepting the offer or not ;

n. declaration of the bidder, of the controlling shareholder and of the financial institution regarding the existence of a fact or circumstance not disclosed to the public that may influence, in a significant way, the results of the company or the quotations of its shares;

o. economic and financial data from the two last fiscal years as well as of the last quarter of the current year;

p. a statement concerning the status of the Company as an issuer at the CVM;

q. information on the possibility of a request of cancellation of the registration of the company occurring; and

r. any other relevant elements.

After the operation takes place, the Administrative Council of Economic Defence (Conselho Administrativo de Defesa Econômica – CADE) must be informed, by the parties and the CVM on the changes of control in listed companies in order to examine the same, if necessary (Article 54 of Law 8884/94), for anti-trust considerations.

1. Which is the role of the target company´s Board of Directors in case of a take-over bid? Could the Board prevent the take-over from being carried out? Which is the liability in case of taking decisions that may jeopardise the operation?

Administrators of Brazilian companies are under a general duty of care as foreseen by Law 6404/76. Amongst these, is the duty of acting in the best interests of the company.

The company´s administrators are not personally responsible for obligations contracted in the name of the company and arising out of a regular act of his administration. However, he will be personally liable for any losses caused to the company when he proceeds : (i) within the powers granted to him by the law or the By-laws, negligently or fraudulently ; (ii) ultra-vires, i.e., beyond the powers granted to him by law or the By-laws (Article 158 of Law 6404/76). The action against the director for his civil responsibility should be brought by the Company (Article 159), but the law also foresees the possibility of shareholders representing at least 5% (five percent) of the corporate capital filing the action under certain circumstances.

There are specific rules concerning deals between companies of the same group and linked by shareholding. Article 245 determines that the administrators (comprised of the directors and the administrative council) may not, against the interests of the company, favour an associated linked company. They must make sure that all the operations between them respect equitable conditions or foresee an adequate compensation. They will be liable for damages caused by their acts or actions that do not comply with this rule.

The general rule of a duty of care to the Company applies and there is no statutory obligation regarding the issue of a statement commenting on the offer or disclosing information that may be required by the shareholders to reach a decision.

Besides the civil responsibility, the CVM may also decide on the commencement of administrative proceedings to decide on the responsibility of directors on a given fact and so to decide, if there has been an infringement on his duties, on whether he will be subject to one of the penalties foreseen by the law, amongst which the following should be mentioned: warning; fine; suspension from the post; temporary suspension from being a company administrator for up to 20 years; suspension from operating directly or indirectly in the capital market.

2. Could the competent authority deny authorisation for a take-over bid? In what cases?

Yes, the CVM can deny authorisation for a take-over bid. Law 6385/76 establishes that the CVM may, with the purpose of preventing or correcting anomalous market situations, amongst other cases, suspend the negotiation of securities or cancel the registration of listed companies with the CVM (Article 9, first paragraph of Law 6385/76).

Typically, the CVM will deny authorisation for the accepting of public offers made without due observance of publication notices, as foreseen in the applicable law (see, in this regard, CVM´s Deliberation number 2, of 10th November 1978).

3. Could the take-over bid conditions be modified?

Yes. The offeror may improve, only once, the price or payment conditions, provided that it is a percentage which is equivalent or more then 5% (five per cent) and within up to 10 (ten) days before the end of the offer´s term; the new conditions must be extended to the shareholders who have already accepted the offer (paragraph 1, Article 261 of Law 6404/76).

4. Is it possible to make competitive take-over bids?

Yes, the fact that a public offer is in place does not prevent another public offer being made. It is important to note that the publication of a competitive bid or offer annuls the sale orders agreed in acceptance to the previous offer. The first offeror may extend the term of its offer in order to make it coincide with the term of the competitive offer.A.VOLUNTARY TAKE-OVERS

1. Under your legislation is it possible to carry out voluntary take-overs? In what cases?

Yes. Voluntary take-overs are regulated in Articles 257 to 263 of Law 6404/76, which refer to the acquisition of the public company´s control. The rules contained therein are also applicable to the cancellation of the registry of listed companies.

2. What are the differences with respect to compulsory take-over proceedings?

As seen above, Brazilian law does not regulate compulsory take-over bids, although the legislation allows for cases of compulsory acquisitions of shares. For the rules applying to those cases, please see the previous section of this work.

i. IPOs

1. Is there any specific legislation in your country regarding IPOs?

Rules applying to initial public offerings are to be found in Law 6404/76, Law 6385 and CVM Regulations.(see question 2 below).

2. If yes, which are the basic IPOs rules?

The issuer must be a public company duly registered at the CVM.

CVM Instruction number 13, of 30th September 1980 regulates the registration of public subscription of shares. Pursuant to the same, it is necessary to present a prospectus to the public containing information on the company as well as on the issue.


1. Is there any obligation to inform the relevant authorities if a fixed percentage of participation is reached? If yes, does this obligation only refer to listed companies or to all companies?

a. If yes, which is this percentage?

b. Does this percentage vary depending on the sector concerned (e.g., Credit Entities, Insurance companies, etc…)?

Yes. According to CVM´s Instruction number 69, of 8th September 1987, any person or entity who, acting separately or jointly, reaches a shareholding, direct or indirect, that corresponds to 10% or more of the voting capital of a public company must inform CVM.

Similarly, any operation that results in the sale of the listed company´s control must be informed to the CVM, to the Stock Exchange or other entities of the over the counter market where the securities are negotiated, as well as publicised in the press (Instruction CVM 299, of 9th February 1999).

1. Before what authority must this communication be submitted and within which time limit? Are there different competent authorities depending on the activity sector of the target company?

Please see answer to question 1 above.

2. Are the percentages mentioned in 1. different for foreigners and nationals?

No, the law makes no differences in this regard.


1. Does your legislation contain competition regulations?

Yes. Brazil´s current antitrust legislation basically consists of Law 8884, of 13th June 1994, as amended by Law 9096, of 29th June 1995. It establishes antitrust measures in keeping with the constitutional principles of free enterprise and competition and the restraint of abuses of economic power. It, therefore, contains provisions on violations of the economic order in terms of the effects such as abusively exercising a dominant position or acts such as collusive behaviour or unfair business practice.

Specifically, it determines that a violation of the economic order could be any act, regardless of the form or the absence of fault of the offending party, that is intended to produce or is likely to produce, even though unconsummated, any of the following anti-competitive effects: (I) to limit, defraud, or in any other manner cause harm to free competition or free initiative; (ii) to dominate the relevant markets of goods and services; (iii) to increase profits arbitrarily; and (iv) to exercise a dominant position in an abusive manner.

2. Is there any definition of “dominant position”in your legislation or jurisprudence?

Article 20 of Law 8884 of 11th June 1994 establishes a list of actions and possible effects, which violate the economic order. According to Article 20 of Law 8884/94, a dominant position takes place when a company or group of companies controls a substantial part of a relevant market as a supplier, intermediary, buyer or financier of a product, service or technology relating thereto. A dominant position is presumed when a company or group of companies controls twenty percent or more of a relevant market. However, the abuse of a dominant position cannot be considered to be an automatic effect, independent of those effects above mentioned and which are expressly described in Article 173, number V, paragraph 4 of the Constitution.

3. When reaching a “dominant position” in the market, is it compulsory under your legislation:

* To ask for authorisation?

* To inform the authorities on the situation?

* Which is the authority competent to decide on this subject?

Article 54 of Law 8884/94 provides that any act or agreement that has the effect of limiting or restraining competition or that results in control of a relevant market must be submitted to CADE (Administrative Council for Economic Defence), which is the competent authority to decide on the subject, for review. Moreover any action intended for any form of concentration, whether through a merger with or into other companies or any other form of corporate grouping wherein either the company or group of companies accounts for twenty percent of the relevant market, or has recorded in its balance sheet R$400 million must also be submitted. However, it is important to mention that a dominant position attained by natural means such as growth or efficiency is not subject to any form of authorisation. Moreover, acts are not per se condemnable but solely if they result in any of the anti-competitive effects mentioned above

1. Could this competent authority prevent the acquisition from being completed? In what cases?

CADE will authorise a merger, acquisition or joint venture that is subject to the reporting requirement only if it can be demonstrated that the transaction will increase productivity or that competition will not be substantially reduced in a relevant market. As above seen, according to Article 54 of Law 8884/94, any act or agreement that has the effect of limiting or restraining competition or that results in control of a relevant market must be submitted to CADE for review. Therefore, it is understood that these acts may not be considered as having been consummated until CADE has formally authorised them.

2. Which are the consequences of infringing competition rules?

Article 16 of Law 8884/94 holds the company and each of its managers liable for violations to the economic order. Companies or entities within the same economic group, either “de facto” or “de jure” shall also be held jointly liable for violations of the economic order. As a consequence, these entities may suffer penalties, which include fines ranging from one to thirty percent of the gross of the gross pre tax revenue for companies. A personal and exclusive fine may be imposed on managers who are directly or indirectly responsible for violations from ten to fifty percent of the fine imposed on the company.

Moreover, parties who fail to comply with reporting requirements may be subject to fines. Articles 60 and 62 of Law 8884 determine that CADE Board decisions imposing fines, as well as obligations to perform, constitute an extra-judicial instrument, which may be enforced through a direct judicial proceeding.

CADE has also threatened to prosecute for criminal action pursuant to Article 4 of Law 8137 of 27th November 1990 in certain cases of non-compliance reporting requirements.

6. What are the authorities controlling competition?

Competition in Brazil is controlled by CADE, which is an independent federal agency with authority to enforce the provisions of Law 8884/94. CADE is assisted by two other federal agencies, the SDE (Secretary of Economic Law) and SEAE (Secretary of Economic Accompaniment). In addition to regulating competition within the Brazilian territory, CADE also has subject matter jurisdiction to question acts practised abroad, which may produce effects in Brazil. CADE may also exercise personal jurisdiction over a foreign company with an affiliate, branch, agency, office, establishment or representative located in Brazil, as that company would, therefore, be regarded as being located in Brazil.

7. In case of purchasing public undertakings, does your country follow the “peliego” system (that is, are the offers prepared following a list of requirements?) Are such offers sealed and accepted in accordance with their terms and conditions?

Law 8666 of 21st June 1993, as amended by Law 8883 of 8th June 1994 (Public Bids and Contracts) establishes that every contract between the government, whether at federal, state of municipal levels, as well as public agencies, and a third party is preceded by a bid, which may be in the form of competition, price inquiry, invitation, contest or auction. Foreign companies are allowed to participate in the competitive bidding process under the same conditions as Brazilian companies (in certain instances in association with Brazilian Companies). It provides that, in order to participate in an international competitive bidding, a foreign company must be able to demonstrate that its activities are in accordance with the rules of its own country, as well within its legal capacity and conditions established in the bid publication.

As per Articles 27 to 33 of Law 8666/93, interested parties shall comply with the following requirements:

a. to show evidence of the association agreement executed by the associated companies through private instrument or public deed;

b. to indicate the company in charge of the association which shall meet the conditions imposed by the invitation to bid;

c. to present evidence of the following (i) legal capacity; (ii) technical capacity; (iii) financial standing; (iv) tax situation; and, in the case of a foreign company not operating in Brazil, evidence to show its association with a Brazilian company;

d. neither one of the associated companies can participate in the same bidding individually or in association with other companies.

Tendering for public undertakings usually takes the form of an auction with pre-qualification requirements. Tendering for concessions of public services normally take the form of competitive bidding with sealed proposals and extremely stringent pre-qualification proceedings.


1. Is there any limitation to foreign investment in your country?

Foreign capital in Brazil is governed by the 1988 Federal Constitution and Laws 4131, of 3rd September 1962 and 4390, of 9th August 1964. Both laws are regulated by Decree 55762 of 17th February 1965, as amended.

Amendment 6 to the Brazilian Constitution modified Articles 171 and 176 by eliminating, in 1995, the distinction between “national companies” and “national companies of Brazilian capital”. Since then, foreign investors have been granted identical legal treatment under the same conditions as Brazilian companies and all forms of discrimination not specified in legislation have been forbidden.

In spite of the general principle of national treatment or non-discrimination, as above mentioned, foreign investment restrictions still exist in the following areas:

a. atomic energy production;

b. press, television and radio ownership/management;

c. rural property ownership;

d. ownership of areas on international borders;

e. the fishing industry;

f. postal and telegraph services; and

g. airlines with domestic flight concessions.

Additionally, there are restrictions on majority holdings in financial institutions and insurance companies, which may be lifted on a case by case basis depending on the national interest. There are also restrictions for control of telecommunications companies by foreign capital.

Thus, the main restriction to foreign capital today in Brazil is actually the horizontal measure of exchange controls, which adversely affects equally foreign and domestic capital. As regards exchange controls, it is important to mention that foreign companies may invest freely in Brazil in non-restricted areas subject to registration at the Central Bank of Brazil (“Central Bank”).

Thus, any funds brought into the country to pay up a company´s share capital (as well as any assets, machinery and equipment brought into Brazil without initial capital expenditure which are to be used in the production of goods and services) whether belonging to individuals or corporate entities resident and domiciled abroad, must be registered before the Central Bank so as to allow the foreign investor to remit profits and dividends abroad as well as repatriation of the capital invested.

It is important to note that foreign take-overs of Brazilian companies in non-restricted sectors can be effected under the same conditions as those allowed to Brazilian nationals. Foreign companies established in Brazil have the same rights as Brazilian companies, concerning bids and the sales of goods and services to the government.

1. If this is the case, are there any authorisations that must be obtained prior to any foreign investment?

a. Are there any cases where only a prior or further communication to the competent authority is required?

b. What is the competent authority to decide on this matter?

In non-restricted areas, no preliminary authorisation is required for remittances of funds for investments in the Brazilian territory. Such funds can be used to subscribe or purchase shares in Brazilian companies. The money must be remitted to Brazil through a banking establishment authorised to deal in foreign exchange.

As above mentioned, there are restrictions on majority holdings by foreigners in financial institutions and insurance companies, which may be lifted on a case by case basis depending on national interest. In those cases, the competent authority to decide the issue will be the Central Bank of Brazil, for financial institutions, and the Private Insurance Agency (“Superintendência dos Seguros Privados” – SUSEP), for insurance companies.

1. Is there any difference in the foreign investment regime applied that may depend on whether the recipient of the investment is a listed company or not?


2. Is there any difference in the foreign investment regime applied that may depend on whether the recipient is a company resident in a tax haven?


5. Any other national protection to identify or comment?

There are some restrictions as regards government procurement for certain products or and access to local finance.

As seen under question IV. 7 above, Law 8666/93 (Public Bids and Contracts), as amended, and Law 8883/94 regulates government procurement matters in Brazil. In accordance with the regulations in force, all contracts between the government and a third party must be preceded by a bid.

Generally speaking, the law provides for non-discriminatory treatment between Brazilian and foreign companies. However, when all other factors are equal, suppliers may be selected according to whether a service or good is domestically produced, and in certain cases produced or supplied by Brazilian firms as defined by Constitutional Amendment 6/95.

Foreign firms not operating in Brazil and participating in international tenders must have legal representation in Brazil. It is important to point out that in consortium associations between Brazilian and foreign companies, the leadership shall always be vested in the Brazilian company.

With regard to access to local finance, Law 4131/62 restricts public financial institutions from financing enterprises controlled by individuals who are not resident in Brazil, except in the following cases:

. if the funds were obtained abroad;

. upon special authorisation from the Ministry of Planning, Budget and Administration based on national interest (in the case of companies which are not yet established in Brazil);

. for enterprises that operate in priority sectors and geographical regions, as determined by presidential decree.


1. Does the purchase of shares entail the payment of any tax in Brazil? If this is the case:

a. In which amount?

b. Are there any exemptions?

c. Who is the taxpayer?

d) What is the time limit set for paying such tax?

There is no stamp duty or other tax due per se in relation to the acquisition of shares. However where shares are acquired in open capital companies the transaction will be liable to tax on financial operations (IOF). The tax is due on the liquidation of the financial operation and rates vary between 0% and 1% per day in relation to fixed income investment funds.

2. Are there differences in the tax regime in case of purchases of assets or going concerns?

Where assets are purchased instead of shares the tax regime regarding the taxation of capital gains is the same for both cases. The acquisition of certain assets, e.g. property, will bring about additional taxes/charges in relation to the registration of the deeds of transfer with the respective land registries. Such charges depend upon the location of the asset and the value of the same.

3. Does the fiscal regime vary depending on the nationality of the purchaser?

The overall tax treatment in Brazil depends upon whether the purchaser is resident in Brazil or not (but not on the nationality). In relation to non-residents capital gains tax is payable at the source on any gains realised prior to such gains being remitted abroad. The principal rate is 15%.

3. Is there any difference in the tax if the taxpayer is a company resident in a tax haven?

Brazil has specific legislation defining tax havens as countries that do not tax income or tax income at a maximum rate less than 20%. Whilst such legislation does not impact directly on mergers and acquisitions operations, Brazilian transfer pricing legislation extends to all operations with tax haven countries. Additionally any payments in relation to services charged by tax haven companies are liable to a withholding tax in Brazil of 25%.

In general there are no specific proposals to affect any of the above responses however Brazilian legislation is constantly subject to change and no predictions can be made about the future.


Are there current proposals to change the regulatory or statutory framework governing any of the above issues?

There is a bill aimed at modifying Law 6404/76 currently being discussed at the Brazilian Congress. The bulk of this bill is intended to granting further protection to minority shareholders under Brazilian corporate law. As above seen (under the Take-over Bids section, answer to question 1), in view of the introduction of Law 9457/97 in 1997, to increment the Brazilian privatisation process, minority shareholders have lost some important rights. Thus, as seen, compulsory take-over bids provisions which imposed on the bidder the obligation of making a public offer of acquisition of shares belonging to minority shareholders, in the case of the acquisition of the company´s control, so that such minority shareholders were afforded the same treatment as controlling shareholders, were withdrawn from Law 6404/76.

Amongst others, the bill contains a provision stating that the sale of a company´s control will be subject to the purchaser making a public offer for the acquisition of ordinary shares belonging to shareholders (reinstatement of the provision withdrawn by Law 9457/97). The bill expressly refers that state companies will not be subject to this rule.