_The September edition│2024 of our Newsletter has the following highlights:

– STJ rules on Stock Options commercial nature

– Due to deadlocks, B3 will launch a new public consultation to revise the rules of the Novo Mercado trading segment

– B3 releases the first edition of the Companies Guide

– CVM promotes enhancements to the Empresas.Net System

_STJ rules on Stock Options commercial nature

By a vote of 7 to 1, the 1st Section of the Superior Court of Justice (STJ), in a context of Special Appeals (Theme 1.226), decided that stock options have a commercial and not compensatory nature.

The discussion held in the STJ through REsps 2.069.644 and 2.074.564 was whether the taxation of the acquired shares should occur at the time of purchase (compensatory nature, subject to a 27.5% income tax rate) or at the time of sale (commercial nature, subject to capital gains tax rates ranging from 15% to 22.5%).

The heart of the matter was to determine whether stock option plans should be considered as a part of employees’ compensation or as an independent commercial transaction. This definition would help to identify the applicable income tax rate and the timing of its incidence.

The recognition of the mercantile nature by the Superior Court of Justice has established the understanding that income tax should be applied at the moment the employee sells its shares with capital gain, causing a significant tax impact for individuals. The decision served to preserve the purpose of stock options which is to encourage employee participation in the company’s activities, allowing them to benefit from better performance of the company’s shares in the market.

More details about the Court decision in Portuguese can be accessed through the following link: https://processo.stj.jus.br/repetitivos/temas_repetitivos/pesquisa.jsp?novaConsulta=true&tipo_pesquisa=T&cod_tema_inicial=1226&cod_tema_final=1226.

_ Due to deadlocks, B3 will launch a new public consultation to revise the rules of the Novo Mercado trading segment

B3 plans to launch a new public consultation regarding updates to the Novo Mercado trading segment regulation. The last structural reform of the segment took place in 2017 with the implementation of stricter governance rules. However, after some controversies involving listed companies, B3 decided to revise the regulation to provide greater security to companies in the Novo Mercado.

As a result, in the first half of this year, B3 presented a public consultation with initial changes proposals, which were criticized by law firms, listed companies and market representatives. The 58 contributions to the consultation revealed some issues that need to be solved, particularly regarding the “Under Revision Seal” and the new limitations for board members.

“Under revision” seal

The first topic of the public consultation was the possibility of placing the Novo Mercado seal “under revision” if any of the following events occur: (i) Disclosure of a material fact that indicates the possibility of a material error in financial information; (ii) Delay of more than 30 days in delivering financial information; (iii) Independent auditors’ report with a modified opinion; (iv) Filing for judicial reorganization in Brazil or equivalent procedures in foreign jurisdictions; (v) Inability to maintain an executive officer in their position due to arrest or death, without the disclosure of a replacement or succession plan for more than 7 business days; (vi) Environmental disaster involving the company; and (vii) Disclosure of a material fact regarding a fatal accident involving the company’s employees or service providers in the performance of their duties, which is not accompanied by an action plan or regarding the existence of labor practices that violate human rights within the company’s operations.

The deadlines for the start of fact verification by B3 and the period during which the seal will remain “under revision” were outlined in the proposals listed in the public consultation. According to B3, the purpose of the proposed modification is to allow the Novo Mercado Seal to signal to investors and the market if something significant is happening with the company.

The criticisms on the proposal, however, were almost unanimous among participants of the public consultation. One of the arguments raised was that the function of signaling potential problems to investors is already addressed by CVM Resolution 44, which deals with the disclosure of material facts. Thus, the “under revision” seal could cause further reputational issues for companies and lead to premature reactions from investors, especially because B3’s proposal did not specify whether affected companies would have the right to prior notice or response.

Modifications regarding board members

Another proposal was to limit the participation of board members to a maximum of five boards of listed companies at the same time, except for executive officers (one board), statutory officers (two boards) and Chairmans of a Board of Directors (who can chair one board and participate in up to three more, or chair two boards and participate in one more).

Regarding this, some stakeholders expressed support for the change, while others opposed the limitation arguing that such decision should be made internally by each company. The suggestion made in this case was for the participation of board members in different boards to be disclosed transparently so that companies can make informed decisions.

Another change proposed by B3 was to limit the term during which board members are considered independent to 10 years. This provision was based on data from the “OECD Corporate Governance Factbook 2023,” which cites 29 countries that have a maximum term for board members to remain considered independent, with variations between 5 and 15 years.

In the Brazilian case, after the proposed 10-year period, the board member can remain on the company’s board but will no longer qualify as “independent.”

The main criticisms of the proposal were regarding the established term. The market for independent board members is scarce, which leads to the perception that a 10-year period is too short. The recommendations made in this case were to increase it to 12 years, with a longer adjustment period for companies.

Updates on the public consultation can be accessed in Portuguese through the following link: https://www.b3.com.br/pt_br/regulacao/regulacao-de-emissores/atuacao-normativa/revisao-dos-regulamentos-dos-segmentos-especiais-de-listagem.htm

_ B3 releases the first edition of the Companies Guide

In September, B3 launched the Companies Guide, a publication aimed at guiding listed companies on good practices in corporate governance and regulatory compliance. The guide provides a comprehensive overview of the main requirements and obligations of listed companies, covering topics such as disclosure of material information, compliance, risk management and the responsibilities of managers.

Additionally, the guide consolidates official documents released by B3’s, including recent updates to regulations as well as developments implemented based on practical experience gathered over the years.

The guide can be accessed in Portuguese through the following link: https://www.b3.com.br/pt_br/regulacao/regulacao-de-emissores/atuacao-orientadora/interpretacoes.htm