Trust is the foundation of any business partnership. However, effective corporate governance is not based solely on trust, but on objective systems that protect the company when that trust is broken.
Misconduct or commercial misconduct by a partner represents one of the greatest threats to the continuity and value of a well-established business.
The existence of a legal provision for exclusion for “just cause” in Brazil is a false sense of security for business owners. The key question is: to what extent can your business withstand a legal dispute to determine whether a partner should be excluded?
We highlight four essential items that need to be integrated into your company’s corporate documents to avoid this type of uncertainty and dispute:
1. Why Isn’t the Brazilian Law Enough? The Brazilian Civil Code allows for the judicial exclusion of a partner who commits acts of “undeniable gravity,” putting the company at risk. The problem lies in subjectivity. What is “undeniable” for you may be defensible or justifiable for another partner and uncertain for a judge. Real protection lies not in general law, but in a private contract that clearly and in advance defines the rules of the game.
2. Objective Exclusion Triggers: A robust Shareholders’ Agreement replaces the subjectivity of the Brazilian law with clear, factual triggers. The discussion and formalization of these points should occur in times of alignment, not crisis. Triggers should be specific to harmful conduct, such as: competition with the company; customer diversion; acts detrimental to the company’s reputation; fraud, corruption; criminal conviction; leaking of strategic, financial, or commercial information to unauthorized third parties; conflict of interest, among many others, which may vary according to the business sector and must be assessed on a case-by-case basis.
3. Defense Mechanism: The contractual termination clause for just cause is the device that allows the company to act quickly and decisively. It transforms a crisis into an administrative proceeding. To be effective, it must detail three pillars: (i) Triggers; (ii) Valuation Methodology for partner termination; and (iii) Payment Conditions.
4. Execution of Termination: With a well-structured clause, the occurrence of conduct does not initiate a battle, but rather a pre-agreed procedure. The process is clear: formal notification based on the contractual trigger, calculation of the amount according to the defined method, and payment within the agreed terms.
The most effective corporate governance operates silently, anticipating scenarios so that management can focus on growth. Your corporate documents in Brazil should not be seen as a record of the past, but as the primary tool for ensuring future stability. The essential question, therefore, is not whether a conduct crisis can occur, but whether your company’s contractual structure is prepared to safely manage the solution in Brazil, protecting the business value and the legacy of all involved.
