March 2022

_the march│2022 edition of our Newsletter has the following highlight:

– CVM publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by listed companies

– The Role of Corporate Governance in the ESG Agenda

– Understanding Shareholders’ Agreement: Tag Along and Drag Along

– Understanding Shareholders’ Agreement: Preemptive Right and Right of First Offer

_CVM publishes Circular Letter with general orientations regarding the rules and procedures that must be observed by listed companies


On February 24, 2022, the Brazilian Securities and Exchange Commission (“CVM“) published their annual Circular Notice (“CVM Notice/2022“)which outlines general guidelines from the Superintendency of Company Relations (“SEP“) on procedures to be observed by listed companies, especially regarding the disclosure of periodic and eventual information. Among the updated matters, we highlight:


  1. Summary Publications: due to the new wording of Article 289 of Law No. 6404/76 (“Corporation Law“), the mandatory publications made as of January 1, 2022, regardless of the period to which they refer, may occur in a summarized form and only in a large circulation newspaper, no longer being mandatory to publish them in the Official Gazette. According to SEP, it is sufficient for listed companies to update their Registration Form, item “Channels of Disclosure”, and disclose a Notice to Shareholders explaining that the update was motivated by the change in legislation. The full version of the corporate acts and the financial statements published in summary form must be available for access on the web page of the newspaper, with digital certification of the authenticity of the documents, according to the procedures established in the CVM Guidance Opinion No. 39, issued on December 20, 2021.
  2. (Update of the Reference Form: in the event of a change in the number of treasury shares resulting from the execution of a buy-back program, SEP understands that it is not necessary to update the Reference Form. However, if the number of shares acquired during the program reaches the levels of 5%, 10%, 15%, and so on, of the same type or class of shares, due to the possibility of variation in the percentage of all shareholders, their recommendation is to update item 15.1/2 of the Reference Form.
  3. Uninterrupted Ownership of Shares in Separate Elections of the Board of Directors: Pursuant to paragraph 6 of article 141 of the Corporation Law, only shareholders who prove the uninterrupted ownership of shares, during the period of at least 3 months immediately prior to the shareholders´ meeting, may exercise the right to elect and remove a member and his alternate from the Board of Directors, in a separate vote. Since CVM Instruction 481/09, does not contain any provision regarding the submission of supporting documentation of uninterrupted ownership by shareholders wishing to exercise this right, SEP clarifies that the aforementioned Instruction requires that the shareholder itself verify the uninterrupted ownership of its shares when filling out the items on the remote voting bulletin, being possible to carry out a prior alignment with the custodian bank to verify the uninterrupted ownership of the shares before sending the reports on the remote voting to the companies. However, according to SEP, regarding the bulletins sent directly to the company, it is up to the companies’ management to guarantee the integrity of the remote voting process, and that any documental requirements should not represent an unnecessary creation of obstacles to the shareholders’ participation in the meetings.
  4. Delays in Periodic and Eventual Disclosures: companies shall inform the market if they have difficulties in meeting deadlines for the submission of periodic and eventual disclosures, and the Investor Relation Officer is responsible for assessing the form of this disclosure, which shall contain, at least: (a) that the company will not disclose the periodic information within the deadlines established in the Corporate Law or in specific rules regarding the subject; (b) the reasons why the company will not be able to meet the deadline; (c) the effective measures that are being adopted to correct the problem; and (d) the estimated deadline, within reasonability, for disclosure of the periodic information that will not be timely disclosed.



The full text of CVM Notice/2022 can be accessed in Portuguese through the following link:



_The Role of Corporate Governance in the ESG Agenda


Over the past few years, it is possible to observe a significant increase in discussions involving ESG topics in the management of companies around the world. Although social and environmental aspects are gaining increasing prominence, the most advanced pillar in Brazil today is corporate governance.


Since the creation of the Novo Mercado segment of the B3 stock exchange in 2000, the Brazilian market has been establishing a high standard of governance, with the adhesion of specific practices and obligations aiming at increasing transparency in the disclosure of information for the decision-making process of shareholders and investors.


In this context, unsurprisingly, the result of a recent survey by AMBIMA (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais – which stands for the Brazilian Association of Financial and Capital Market Entities)[1] with 209 asset managers, released earlier this year, indicated that governance is the ESG aspect most observed by asset managers, with ethics and transparency being the factors most mentioned by them (92%).


Among the governance priorities, labor policies and relations (79%), data privacy and security (77%), board independence (75%), and board compensation (54%) were also mentioned.


The survey’s conclusion is encouraging, since pillar G is the core of ESG. Without good corporate governance, it is impossible to effectively implement social and environmental actions and align the company’s objectives with the creation of long-term value not only for its shareholders, but also for society in general.


Under the scope of governance, the rules and procedures to be observed in the decision making of companies are defined, from the elaboration of policies to the determination of rights and responsibilities among its different participants, including the board of directors, officers, shareholders, stakeholders, and the market in general. Thus, the increase in corporate governance standards is directly related to an increase in the transparency with which companies relate and communicate with the market and their shareholders, managers, employees, and partners in general.


It is no coincidence that over the past few years, companies with good corporate governance practices have outperformed the general market indexes in both the US and Brazil.


In this line, an S&P Global survey (2020)[2] on governance factors showed that companies rated below average in relation to good governance are more susceptible to mismanagement. Therefore, failures in governance policies may expose companies to unacceptable levels of risk, significantly compromising their business


Given the evolution of the Brazilian market on the subject, the simple disclosure of information on integrity, policies and codes of ethics and conduct is not enough. It is essential that companies realize the value that the effective adoption of good corporate governance practices generates in their relationships, in the management of their business, and in their perception before the market and the community in which they operate.


The text above was published Portuguese in the Legislação & Mercado section of Capital Aberto on February 22, 2022, and can be accessed through the link below:



[1] Accessed at https://www.anbima.com.br/pt_br/imprensa/governanca-e-o-aspecto-do-esg-mais-observado-pelas-gestoras-de-recursos-8A2AB2887E4BC696017E54173A2C381B-00.htm.

[2] Accessed at https://www.spglobal.com/en/research-insights/articles/what-is-the-g-in-esg



_Understanding Shareholders’ Agreement: Tag Along and Drag Along


It is very common for shareholders’ agreements to have clauses with the purpose of regulating the transfer of shares issued by the company, both for the shareholders themselves and for third parties. In this context, shareholders’ agreements may contain mechanisms used to protect controlling and minority shareholders in case of transfer of shares, such as Tag Along and Drag Along clauses.


The Tag Along mechanism in general aims to protect minority shareholders. The term “Tag Along” translated into Portuguese means, literally, “to go together”, since the Tag Along clause grants the right to sell the shares held by the minority shareholder together with the shares held by the controlling shareholder, in case of receiving a proposal to sell its shares.


Minority shareholders shall have the option to exercise or not the tag along right, so that they can choose between selling their shares together with the controlling shareholder or remaining in the company after the entrance of the acquiror of control. If they decide for the joint sale, they will have the right to demand that the acquirer offers the equivalent value, or a percentage thereof to be established in the shareholders’ agreement, of the amount paid per share to the controlling shareholder, under the same terms and conditions offered to the controlling shareholder.


The Drag Along mechanism, also known as the right to demand the sale, generally aims to protect the controlling shareholder, since it guarantees the controlling shareholder the right to compel the minority shareholder to sell its shares in the event of receiving an offer from a third party to acquire all of the company’s shares. In this regard, the main idea is to prevent good opportunities to sell the company from being lost.


Since it is a “forced sale”, it is quite common that minimum conditions are established so that the controlling shareholder can exercise his Drag Along right, such as the determination of a minimum offer price and the form of payment of the acquisition price.


In the event of applying the Drag Along clause, the price to be paid for the minority shareholder’s shares may be equivalent to the price received by the majority shareholder or a percentage thereof to be determined in the shareholders’ agreement, which may establish other criteria for setting the value, as well as payment terms and conditions.


It is important to emphasize that Tag Along and Drag Along clauses can be used in other shareholding structures, including in companies that do not have the figure of a controlling and minority shareholders. In any case, the scenario and characteristics of each company and its shareholders must be analyzed in order to establish the best mechanisms for share transfers to be used in each case.


The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on February 15, 2022, and can be accessed via the link below:



_Understanding Shareholders’ Agreement: Preemptive Right and Right of First Offer


Unlike listed companies, whose basic principle is the free circulation of shares, article 36 of Law No. 6.404 of December 15, 1976, as amended (“Corporation Law“), allows some limitations to be imposed on the circulation of shares issued by closely-held corporations, since these limitations are strictly regulated in the by-laws and their negotiation is not prevented or conditioned to the approval of the company’s management bodies or by the majority of shareholders.


The possibility of limiting the circulation of shares is mainly due to the personal character (intuitu personae) that often prevails in closely-held corporations, in which the identity or some attribute of the shareholders is highly relevant. Thus, in these companies, shareholders seek ways to have greater control over the shareholding structure of the company, precisely to prevent their shares from being sold to someone who does not have the same attributes as the transferee shareholder or in whom the other shareholders do not have the same confidence.


Among the possibilities of mechanisms restricting the free circulation of shares, two of them are very common in shareholders’ agreements and in some by-laws: (i) the Right of First Refusal and (ii) the Right of First Offer.


  1. Right of First Refusal


The most common mechanism to restrict the transfer of shares is the right of first refusal. If any shareholder wishes to sell his shares (“seller“), this mechanism guarantees that the other shareholders (or part of the other shareholders, as the case may be) (“offerees“) have preference in the acquisition of such shares, on equal terms with the potential buyer, which may be another shareholder or a third party


The right of first refusal usually originates with the receipt of an irrevocable and irreversible proposal from a third party to the seller for acquisition of the shares. For it to be efficient, it is recommended that the right of first refusal clause provide for the obligation of the seller to notify the offerees of the proposed acquisition of the shares, containing the conditions presented by the third party, so that the offerees can evaluate whether or not to exercise their preference to acquire the shares offered under the same conditions proposed by the third party.


The right of first refusal clause may also establish that if more than one shareholder is interested in exercising the right of first refusal, the acquisition of the shares must be proportional to their holdings in the company’s capital stock.


If no offered party chooses to exercise the right of first refusal within a certain period established by the parties, then the seller may proceed with the sale to the third-party bidder.


  1. Right of First Offer


In the right of first offer, in contrast to the right of first refusal, the procedures do not depend on an offer from an interested third party, the seller’s intention to sell is sufficient. In this case, the seller must, before offering its shares to any third party, present its intention to the other shareholders (or part of the shareholders, as the case may be).


In practice, after the seller communicates to the offerees about its intention to sell, the period begins for the offerees to send their proposals to acquire the shares.


If more than one offeree sends a proposal to acquire the shares, the seller may choose, at its sole discretion, the one that presents the best terms and conditions.


If no offeree chooses to exercise the right of first offer within the period defined by the parties, then the seller may request offers from third parties. If it receives offers from third parties on more favorable terms than those submitted by the offerees, the seller may sell its shares to such third parties.


  • Other Considerations


Both right of first refusal and right of first offer allow their beneficiaries to have some control over the process of entrance of new shareholders in the company. The most notable difference between these two modalities of limiting the circulation of shares is whether or not a third-party proposal is required to initiate the procedures.


In other words, in the case of the right of first refusal, since the initial offer is sent by a third party, the offeree may have more assurance as to the market value of the company. Thus, this modality can become advantageous for minority shareholders or for shareholders who do not have a clear vision of the company’s value. On the other hand, the right of first refusal can make it difficult for the seller to obtain a good offer, since the potential buyer knows that his offer, even if accepted, will be subject to the right of first refusal of the other shareholders.


In cases where the offeree already has a clearer view of the company’s market value, it is likely that it will be better prepared to evaluate its investment and send a good proposal to the seller, so that, in this case, the application of the right of first offer may be more advantageous than the right of first refusal. In this case, the offeror will have greater liquidity in its sale process to third parties, since the potential interested party that may present a proposal knows that, once accepted, there will be no more uncertainty as to the possible acquisition by another shareholder.


Some shareholders’ agreements and by-laws provide for a combination of these mechanisms, starting with the right of first offer and then applying the right of first refusal. In this case, the offerees have, in fact, the possibility of covering a third party’s proposal that is more favorable than the one initially presented by them. This structure is usually well-suited to family businesses, where keeping the shares in the family is seen as essential by the shareholders.


In addition, it is quite common that if minority shareholders do not have the right of first offer, they are guaranteed with tag along rights, which will be covered in our next article in this series.


The text above was published in Portuguese in the Legislação & Mercado section of Capital Aberto on December 21, 2021, and can be accessed via the link below



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