Having Corporate Governance is a key requirement of today’s business in Brazil, especially for companies that wish to raise funds in the financial, capital and venture capital markets, with the Board of Directors being essential in this structure.
With the recent decision of the Brazilian Securities and Exchange Commission, which ruled on actions by the Petrobras’s Board of Directors, understand below 5 important points about Boards of Directors in Brazil:
1. Corporations (Sociedade Anônima) or Limited Partnership Companies (Sociedade Limitada): Board of Directors is a management body of Corporations in Brazil (and not Limited Partnerships). It is mandatory only in publicly held companies. Non-public held companies need not constitute a Board of Directors.
It is common for Limited Partnership Entities, Closely Held Corporations and even Joint Venture Companies to constitute the so-called “Advisory Boards”, composed of a strategic board of directors, above the officers, with competencies close to Boards of Directors, but which are composed by the liberality of the shareholders and not by legal requirement.
2. Composition of the Board of Directors: The Board of Directors is composed of at least 3 members, elected by the general meeting, and the term of office cannot exceed 3 years, reelection being allowed.
3. Powers of the Board of Directors: It is incumbent upon the Board of Directors (i) to set the general orientation of the company’s business; (ii) elect and remove the officers and define their duties; (iii) supervise the management; (iv) call the general meeting when deemed convenient, (v) express an opinion on the management report and the accounts of the executive board, among other powers that the Bylaws have.
4. Duties of Directors: (i) Duty of Diligence: must exercise, in the exercise of their functions, the care and diligence in conducting the company’s business; (ii) Duty of Loyalty: must serve the company with loyalty and maintain reserve about its business; (iii) Conflict of Interest: it is forbidden to intervene in any business in which you have a conflict of interest with that of the company; and (iv) Duty to Inform: must declare the number of securities issued by the company of which it is the holder.
5. Responsibility of the Directors: The Director is not personally responsible for the obligations he incurs in the name of the company and due to a regular management act, but he is responsible for the losses he causes, when he proceeds with guilt or intent, and with violation of the law or status.
The Board of Directors is an important body in the Governance structure, aiming at the growth of companies in Brazil. Clearly understanding its format, competence and duties will generate value for all the company’s stakeholders.