Legal guide for company directors and CEOs in Brazil

Because environmental, social and governance (ESG) is such an increasing focal point of good corporate governance, we address ESG duties and responsibilities first. For more general duties and responsibilities of directors and CEOs, please scroll down the page or use the navigator to jump to the relevant section. 

This guide focuses on the rules of the Brazilian Civil Code (Federal Law No. 10,406/2002) and on the rules of the Brazilian Corporate Law (Federal Law No. 6,404/1976). The Brazilian Civil Code sets forth the general rules that govern the limited liability companies (sociedades limitadas) while the Brazilian Corporate Law sets forth rules applicable to the joint-stock companies (sociedade anônima), although it is allowed for limited liability companies to also be governed by the rules set forth in the Brazilian Corporate Law on a supplementary basis, that is, the rules applicable to joint-stock company that do no conflict with the rules governing the limited liability companies may be applicable to the latter. This option, however, must be expressly stated in the corporate documents of the limited liability company, considering it is an option (not mandatory).

The limited liability company is the most common type of company in Brazil. However, where relevant, we have given some details on the structure of the joint-stock company, which may be subject to additional rules. 

In Brazil there is a distinction between an officer and a director. A “director” is a member of the board of directors which is a collective corporate body responsible for the strategic decisions of the business and for overseeing the management of the company whilst an “officer” is a legal representative of the company in charge of the day-to-day business operations. The officers and directors may be referred to, generically, as managers. 

Brazilian ESG rules are recent and do not explicitly create ESG duties for managers. 

However, the Brazilian Civil Code and the Brazilian Corporate Law establish that the management of a company has the obligation to act diligently in the performance of its duties. For directors, this includes the duty to act diligently (i) in the management of the company and (ii) in the supervision and control of the company’s activities. Even if these duties are not explicitly related to ESG obligations, it could be argued that they are indirectly related to monitoring new standards and assessing new risks related to ESG. 

Brazilian ESG rules that can be considered applicable for both directors and officers are the following:

1. Guidelines named “Sustainability and ESG Management: How to Start, Whom to Involve and What to Prioritise” which was issued by the Brazilian Stock Exchange (“B3”) with standards for companies on sustainability and ESG (“Issuers Regulation”). The guidelines offer practical and educational material to assist companies on their journey to include ESG criteria in the management of their businesses; 
2. Additional Guidelines approved by CVM, which were issued by B3, called “Anexo ESG”. The Anexo ESG is a document that contains the measures proposed by B3 to encourage gender diversity and the presence of under-represented groups in senior leadership positions and the reporting of good environmental, social and governance practices by listed companies. These guidelines adopt the mechanism that is known as “comply or explain” (inspired by the European Union regulation), in which companies need to provide transparency for the market about the actions taken to comply with the ESG measures or explain the reasons for not adopting them. The evidence will need to be included in the Reference Form, a public document that every listed company must disclose annually. One of the topics to be informed is a set of related performance indicators linked with ESG themes or milestones.
3.  Resolutions No. 4.943/2021, 4.944/2021 and 4.945/2021, issued by the National Monetary Council (“CMN”), related to the financial sector companies,  provide that environmental, social and climate risks need to be dealt with in accordance with new regulatory categories, all of which are exemplified in an express but non-exhaustive list.
4. Resolutions No. 139/2021, 151/2021 and 153/2021, issued by the Central Bank of Brazil (“BCB”), provide for the annual disclosure of the Social, Environmental and Climate Risks and Opportunities Report (“GRSAC Report”) by institutions authorized to operate by BCB and deal with the obligation to send BCB information on the assessment of social, environmental and climate risks. 

The rules listed in items (iii) and (iv) above require continuous control by financial institutions over environmental, social, climate and governance issues, the materialization of which could have a negative impact on the course of financial activities and operations, thus requiring the definition of risk assessment criteria. 

There are some rules stated in different laws with an ESG nature under the perspective of health and safety, gender pay inequality, to be complied by Brazilian companies and their managers, which are the following: 

• Equal pay and remuneration criteria between women and men in the same function (Law No. 14,611/2023);
• Criminalization of racial or ethnic discrimination (Law No. 7,716/1989);
• Promoting and guaranteeing, on equal conditions, the exercise of fundamental rights and freedoms by people with disabilities (Law No. 13,146/2015);
• Guaranteeing equal opportunities for the black population, defending individual, collective and diffuse ethnic rights and combating discrimination and other forms of ethnic intolerance (Law No. 12,288/2010, Racial Equality Statute);
• Reservation of vacancies by employers, in varying and mandatory percentages according to the number of employees, for people with disabilities or those rehabilitated by the social security system (Law No. 8,213/1991, Article 93); and
•  Environmental, social and that climate risks (Resolutions No. 4.943, 4.944 and 4.945, issued by the National Monetary Council – “CMN”). 

Brazilian ESG rules are recent. However, given the relevance of this subject, it is possible that new rules related with ESG practices and/or standards be approved. 

Currently, the following bills with ESG aspects are going through the Brazilian National Congress:

• Bill of Law No. 2.148 (regarding tax reductions for products suited for a green, low-carbon economy);
• Bill of Law No. 412 (regulating the Brazilian Emissions Reduction Market – “MBRE”);
• Bill of Law No. 1.817 (creating incentives for the adoption of good environmental, social and governance practices);
• Bill of Law No. 4.363 (creating the ESG Seal – “Selo Nacional ASG” – that is supposed to highlight the firms that have invested in ESG projects); and
• Bill of Law No. 735 (creating the Green Investment Seal – “Selo Investimento Verde” – with the objective of encouraging sustainable practices within the Brazilian financial and capital markets). 

Current ESG rules in Brazil are not onerous and are generally associated with gains in reputation. 

There are some specific rules that are worth mentioning relative to disclosure and/or reporting of the management. 

One specific rule that is worth mentioning is included in the Resolution CVM no. 80, of 2022, applicable to publicly traded companies, which sets certain guidelines for the disclosure of information regarding such companies. In order to fulfil the obligations set forth in this Ruling, the board of directors of public companies shall implement the “comply or explain” mechanism and some of the information to be provided includes: 

• business strategies criteria considering the impacts of the company’s activities on society and the environment, aiming at the company’s continuity and long-term value creation;
• periodically clarifying the company’s exposure to risks and the effectiveness of risk management systems, internal controls and the integrity/compliance system;
• approving a risk management policy compatible with business strategies;
• the company’s ethical values and principles;
• ensuring that the issuer maintains transparency in its relations with all stakeholders;
• disclosing information related to corporate governance on an annual basis for the purposes of improvement;
• disclosing information related to the appointment of the members of the board of directors, informing whether they are also members of other companies’ board of directors; and
• the criteria for the composition of the board of directors, such as diversity of knowledge, experience, behavior, cultural aspects, age group and gender. 

The information shall be disclosed each year in the company’s reference form (“Formulário de Referência”), a basic document of public companies in Brazil that contains the company’s main data. The public company must update its reference form on an annual basis, up to five (5) months after the end of its fiscal year (as per Article 25, §1º, of Resolution No. 80 of CVM).

In addition to Resolution No. 80 of CVM, some other rulings that may also be considered are the Resolutions No. 139, 151 and 153, issued by the Central Bank of Brazil (“BCB”), which establish that institutions authorized to operate by BCB shall disclose a Social, Environmental and Climate Risks and Opportunities Report on annual basis (“GRSAC Report”) on the assessment of social, environmental and climate risks. 

The Federal Law No. 9.605/1998 provides for criminal and administrative sanctions to companies in connection with environmental matters, which can also be applied to directors and officers when they fail to prevent the company from the practice of any such illegal acts, being considered, in these cases, as co-authors or participants in the same events. 

For cases of breach of the duty of diligence under environmental law, directors or officers may be subject to criminal and to administrative sanctions and to the payment of damages. 

Regarding greenwashing, the lack of standardized metrics and indices for evaluating and disclosing ESG factors has contributed to the practice of greenwashing. Consumer choice of products now includes environmental awareness and ESG issues. In this regard, the Brazilian Institute for Consumer Defence (“IDEC”) has already analyzed some products and concluded that a large number of them had greenwashing practices on their labels, with the companies responsible being notified to adjust their labels. The National Council for Advertising Self-Regulation (“CONAR”) also assessed advertising material from a car manufacturer and warned the company, which had to adapt the material to exclude sustainability claims.

The form of the management may vary depending on the type of legal entity. 

The two main managerial structures verified in Brazilian companies are the officers and the directors. The officers are mandatory in all companies and are entitled to manage the day-to-day routines and represent the company before third parties. The directors are normally an optional managerial structure (although they may be mandatory in certain cases, such as in publicly traded companies) and their role in the company is to supervise the officers on their daily routines and decide certain strategic matters before they can be performed by the officers. 

Considering that the directors are entitled to supervise the officer, the Brazilian Corporate Law sets a restriction, allowing only 1/3 of the directors to be officers. Such is done in the spirit of preventing the directors from supervising themselves. 

In Brazil there is not a supervisory board of directors per se. Considering the two main management structures (officers and directors), the role of a supervisory board falls into the scope of competencies of the board of directors, which includes supervising the officers, being entitled to formally question any of their actions and ask for clarification. Additionally, in joint-stock companies, the board of directors has the powers to appoint and remove the officers, so in within its scope of competences, when supervising the officers, the directors may approve to remove an officer in case they find that he/she is not performing or is in breach of obligations. 

For an individual to be eligible for the position of officer or director he/she must be at least 18 years old or be emancipated. Furthermore, this individual must not have been convicted of certain types of crimes that prevent him/her from managing a company, which are basically: bankruptcy crime, malfeasance, bribery, concussion, embezzlement, crimes against the popular economy, against the national financial system, against rules of defense of competition, against consumer relations, public faith or property. 

Brazilian and foreign individuals may be appointed as officers and/or as directors of Brazilian companies. 

If a foreign individual is appointed to be an officer or director of a Brazilian company and intends to move to Brazil, he/she must first apply for a residency and work authorization. After this authorization is granted, then the foreign officer or director may move to Brazil and be duly invested in his/her position in the company. Before obtaining the residency and work authorization, the foreign individual is not yet a company officer or director, since his/her investment in this position is conditioned to the obtaining of this authorization. 

In addition to the above cases, a person that does not reside in Brazil is appointed to be an officer or director, then he/she must grant power of attorney to a person residing in Brazil to receive service of summons on his/her behalf. The powers granted have to be valid for a period of at least three years after the termination of the term of office of the officer/director living abroad.

The way to appoint officers or directors varies depending on the type of legal entity. 

For limited liability companies: the officers and directors are appointed by the quotaholders representing the majority of the company’s corporate capital. 

For joint-stock companies: when the company does not have a board of directors the shareholders are who appoint the officers. However, if the company has a board of directors, then the shareholders may appoint the directors and the directors are who appoint the officers. There are some particularities in this process worth considering, detailed below: 

• Directors: in general, the appointment of a director is the competence of the shareholders through a shareholders’ meeting of the company. The quorum for approval is for at least 50% plus 1 of the voting shares, except set forth otherwise in by-laws or shareholders agreement. In addition, the Brazilian Corporate Law also grants to shareholders who, individually or collectively, hold at least 15% of the common shares, or preferred shares representing at least 10% of the total outstanding shares, the right to appoint one director.
• Officers: for joint-stock companies that do not have a board of directors, the appointment and election of an officer the competence of the shareholders through a shareholders’ meeting. In this case, the quorum for approval is for at least 50% plus 1 of the voting shares, except set forth otherwise in by-laws or shareholders’ agreement. For joint-stock companies that have board of directors, the appointment of an officer is competence of the board of directors through a board of directors’ meeting and the quorum for approval is of by the majority of its members 

In limited liability companies, the appointment of officers and directors is made either through amendments to the company’s articles of association or minutes of quotaholders’ meetings. In joint-stock companies the appointment of officers and directors is made through minutes to shareholders’ or board of directors’ meetings (considering the rules stated above). These documents must be then filed for registration with the Board of Trade (Junta Comercial) of the state in which the company is located and, solely for joint-stock companies, must also be published in newspapers or in the internet, depending on the company’s revenues: companies with a total annual gross revenue of until BRL 78million may publish these documents on on-line portals; companies with a total gross revenue above BRL 78million must publish these documents in local newspapers and on-line. 

Officers and directors may always resign from their position in the company by sending a formal notice to the company’s management informing about his/her decision. As to their removal, the procedure varies depending on the type of legal entity. 

For limited liability companies: the officers and directors are removed by the quotaholders representing the majority of the company’s corporate capital. 

For joint-stock companies: when the company does not have a board of directors the shareholders representing the majority of the voting shares are who remove the officers. However, if the company has a board of directors, then the shareholders representing the majority of the voting shares may remove the directors and the majority of the directors are who remove the officers. 

In limited liability companies, the removal of officers and directors is made either through amendments to the company’s articles of association or minutes of quotaholders’ meetings. In joint-stock companies the removal of officers and directors is made through minutes to shareholders’ or board of directors’ meetings (considering the rules stated above). These documents must be then filed for registration with the Board of Trade (Junta Comercial) of the state in which the company is located and, solely for joint-stock companies, must also be published in newspapers or in the internet, depending on the company’s revenues: companies with a total annual gross revenue of up to BRL 78million may publish these documents on on-line portals; companies with a total gross revenue above BRL 78million must publish these documents in local newspapers and on-line. 

The officers are the statutory managers who, by law, have powers to represent and to act on behalf of the company. Nonetheless, these powers are not limitless, since it is allowed for the corporate documents of the company to set forth certain rules regarding the company’s representation, for instance: (i) stating acts that need to be performed by two officers acting jointly; and (ii) name officers who may solely represent the company and officers who require the joint presence and signature of another officer to represent the company. In these cases, if an officer acts in breach of the representation rules set forth in the corporate documents, the company will not be considered duly represented and, consequently, will not be bound to the performed act. 

Another limitation to the officer’s representation powers are the matters that require the prior approval by the shareholders or the directors before being performed. In such cases, without the required corporate approval, the officer is not entitled to perform the act that requires such authorization. 

The failure, by the officer, to comply with such representation rules and limitations may cause him to be held personally liable for the acts performed in breach of such rules. 

The directors do not have powers to represent the company, as their purpose is related with the company’s supervision and strategic decisions. Their authority is to supervise the officers in their daily routines and decide certain matters subject to their approval before they can be performed by the officer. 

The board commonly meets when called or in case of urgent matters. Before the COVID-19 pandemic it was common for meetings to be held in person, in the company’s facilities, considering that there were not any rules addressing the possibility of having on-line meetings and there was a mandatory rule for the minutes to such meetings and the corporate books of the company to be signed in ink. After the digital transformation verified during the pandemic, it became more common for the board meetings to be held on-line, especially after recent rulings stating the required formalities for meetings to be held on-line and the authorization for companies to have digital corporate books which may be signed electronically. 

The meetings of the board of directors are normally called and presided by the chairman of the board of directors, at his/her discretion or at the request of other directors. The meetings of the board of officers are normally called and presided by the chief executive officer, at his/her discretion or at the request of other officers. 

During meetings it is common for the board members to have extensive discussions about certain matters, however the common practice is for the minutes of such meetings to state the final decision, in a summary. The discussions are not recorded in it. 

Considering that strategic decisions for the company are taken by the board of officers and directors, the minutes prepared for such meetings are not always made public, being recorded in the company’s corporate books and filed in the company’s head office (although publicly trade companies must always make the minutes to said meetings available in their websites and in a public database in the Brazilian Securities and Exchange Committee’s website). Nonetheless, when the decisions must have effects before third parties, for instance the approval of a transaction, the authorization for the officer to represent the company in a certain act, among others, the Brazilian corporate law requires that the minutes to the meeting in which such decision was taken must be registered with the Board of Trade, thus becoming publicly available to anyone. 

The officers and directors are considered statutory managers of the company, meaning that they are bound to the company’s corporate documents (bylaws and articles of association) which govern their general management duties and obligations. The officers and directors are not employees per se, considering that they occupy the highest positions in the company’s hierarchy. 

In addition to the corporate documents, officers and directors can also execute management agreements with the company, which will set forth specific hiring conditions between the officers/directors and the company, such as their compensation, benefits, personal obligations and other specific conditions negotiated with each of them. These management agreements have a commercial nature. 

In Brazil there are two different “types” of conflict of interests: the formal conflict of interest and the material conflict of interest.

The formal conflict of interest exists when the law sets forth certain situations in which is it presumed that a manager has conflicting interests with the company. The most common is when one of the managers is also a shareholder/quotaholder of a company and has to approve the financial statements that he/she prepared. The law presumes that this manager is interested in approving his/her own accounts, so, in a shareholders’ or quotaholders’ meeting, this manager is not allowed to vote and must refrain from doing so. If he/she votes, such vote will be disregarded due to the conflict of interest. 

The material conflict of interest is verified if there is a suspicion that a manager has a conflicting interest with the company, but this situation is not expressly set forth in law. In such cases, the manager has a moral duty to state his/her conflicting interest, however, if he/she does not do so, there is no legal restriction to prevent the manager from performing the act or business since there is a mere suspect that there is a conflicting interest. Nonetheless, the other managers and shareholders, if have proofing evidence that the manager acted with a conflict of interest, can seek to void the act or business performed by the manager and claim damages against him in favor of the company and other harmed managers/ shareholders/quotaholders. 

For officers and directors the material conflict of interest is more common, since the situations that characterize a formal conflict of interest are often related to shareholders and quotaholders. 

In Brazil, both directors and officers may be held liable in case of breach of their duties of loyalty, diligence and disclosure. The duty of loyalty means that the director or officer must serve the company with loyalty and that their interests may not conflict with the interests of the company. The duty of diligence, in turn, means that the director or officer must use their powers to achieve the company's purpose and to support its best interests. Lastly, the duty of disclosure means that director or officer must inform the company of certain facts when legally required to do so. 

In case of breach of any of those duties, directors or officers may be subject to the payment of damages caused to the company or to third parties, but there is no punitive damages legal regime in Brazil. Moreover, given that directors do not act in their capacity alone, a single director may be held liable for the decision of the whole body of the board of directors, unless he or she expresses his or her disagreement, in writing, with the decision of the board of directors beforehand. The duties of the officers and directors, furthermore, depend upon the company’s articles of association or by-laws. 

The officers and directors have a direct liability to the company itself, considering their fiduciary obligation to seek the company’s best interests. In a second level, if it is proven that the officers and directors acts caused losses to the shareholders/quotaholders directly, they may also seek an indemnification against the responsible officer/director. 

A company in financial difficulty per se does not immediately trigger new duties for the officers’ and directors’, however, since they are the company’s managers, the officers and directors are the first ones to be held responsible in case the financial difficulty is due to mismanagement. Considering this exposure, during these situations managers must keep special focus on compliance rules and responsible managing of the company. 

The Brazilian Bankruptcy Law (Law No. 11,101/2005) lists some conducts that can be considered as mismanagement and allow court judges to determine the immediate removal of an officer or director from a company’s management, such as: (a) make personal expenses that are manifestly excessive in relation to the company’s financial situation; (b) incur expenses that are unjustifiable due to their nature or size, in relation to the capital or nature of the business, the movement of operations and other similar circumstances; (c) unjustifiably decapitalize the company or carry out operations in detriment to the company’s regular functioning; among other actions. In addition to their removal, managers may be held liable for the company’s crisis situation, being even prohibited from managing other companies if they are found guilty. 

Because of this exposure, when managing a company in crisis, the directors and officers end up including in their duties a transparency obligation, showing that their actions are seeking the company’s best interests without falling into one of the situations which may cause them to be considered guilty for the financial distress. Additionally, if a company files for a judicial recovery, the directors and officers will also need to report and justify their actions to the court judge and the judicial administrador (i.e., an expert appointed by a court judge to supervise the execution of the judicial recovery plan and the company’s management). 

When officers and directors perform their activities in compliance with the company’s corporate documents (bylaws and articles of association) and the law, the officer may not be held personally liable for the company’s obligations. However, if an officer of director acts in breach of the rules set forth in the corporate documents and law, he/she may be held personally liable for these breaching acts. Also, considering that company managers have a responsibility to watch over the company’s activities, if they identify an officer or director in breach of his/her obligations, they must act to prevent the breaching officer/director from continuing to performing his/her wrongdoing, otherwise the negligent manager may be held jointly liable with the breaching officer/director. 

In addition to these situations related with the direct acts of the officer and director, due to their obligation to seek the company’s best interests and ensure that the company is complying with the rules and regulations applicable to its activity, directors and officers, but mainly officers, are called to answer, on behalf of the company, for any infractions identified in the company’s activities and are certain to be investigated in case any irregularities are identified by government authorities. If it is verified that the manager, due to direct action or omission, contributed with the irregularity, he/she may be considered personally responsible, together with other company personnel, for the identified irregularity, being thus subject to the penalties set forth in law, which are commonly fines and other financial payments and the prohibition of being a company manager for a certain period. 

Officers’ and directors’ liability cannot be exclude their liability for the company’s activities, which results from their fiduciary obligation to seek the company’s best interests. Nonetheless, there are certain actions that a manager can perform to ensure his responsible management of the company, thus reducing the manager’s exposure to any wrongdoings identified in the company. 

One measure is to keep and make sure of the effectiveness of compliance channels in the company, reinforcing its functions and making sure that any reported complaints are investigated, showing the management’s concern with an ethical environment. Another measure is adopting corporate governance principles, such as transparency, responsibility, fairness and ethical behavior, seeking a fitting management of the company’s activities. 

These measures are directly linked with a responsible management of the company and obedience to the directors’ and officers’ obligations, which, as we can conclude from the above matters, are the main forms of limiting the managers’ liabilities, that it, is the officer/director fulfilled his/her legal obligations and sought to ensure that the company operated according to them as well, he/she cannot be accounted for the wrongdoings of others. However, this responsible management must be in fact pursued, not just a series of “show and tell” actions that have no actual effect. 

As a final option, which not necessarily limits the director’s/officer’s liability but allows him/her to obtain a recovery from eventual losses, the company may hire a D&O insurance on behalf of the manager.