New legislation on limited companies could trigger a large volume of legal proceedings

On October 22, 2022, Law 14,451/22 came into force, which amended the Civil Code regarding deliberation quorums for members of limited liability companies. In this way, the possibility of questions arising regarding the judgments of old issues involving decisions prior to the change in the Law began to be raised.

According to the text of the new Law, any important changes to the company's articles of incorporation, such as merger or dissolution, must be approved by a simple majority — that is, 50% plus one vote. Previously, it was necessary for changes to be approved by at least 75% of the share capital.

For judgments on questions relating to deliberations prior to the change in legislation, the Judiciary must observe the statute of limitations for judicial questioning of minutes of shareholders' meetings and incorporation contracts, in addition to the legislation applicable at the time of the deliberation.

According to data from the second four months of 2022, there are approximately 20.1 million companies active in Brazil. Of this number, 4.8 million are limited companies, as reported by the Ministry of Economy's "Map of Companies" digital platform, which offers data on business registration in the country.

The change in legislation regarding the quorum for modifications to the articles of incorporation of limited companies may come up against the allegations of partners, especially minority shareholders, against changes to the company's articles of association. With the change in legislation and the reduction in the quorum for approving changes to the articles of incorporation, it is estimated that minority partners could argue that they never consented to be part of a company under the new quorums, and could request the maintenance of the original quorums for deliberation.

On the one hand, it could be understood that the change in quorums via the Civil Code resulted in the reduction of some veto rights, without a deliberation on this.

On the other hand, there is the view that limited companies have a balance of power, maintaining equality between partners, including minority shareholders. The change in the quorum can be considered as a correction, and not as a loss of power for the minority partners, as it prevents the controller from changing the conditions of the company alone.

This change offers two distinct paths to the Judiciary:

• Prevalence of the generic link to the Civil Code, which, when modified, results in an automatic change in the quorums linked to it; or

• Prevalence of the will of the partners, which was expressed during the validity of the revoked law, and may be linked to the previously valid text — linking the social contract to the old rule, even after the change in the law — as it portrays the desire of the partners at the time of signing the social contract.

It is also argued that a third path would be possible with this transformation, this being the exercise of the right of withdrawal by dissatisfied members.

Societies that wish to ensure the adequacy of their social contracts to current legislation, avoiding future questions, must come together and vote to review the document, with a view to reducing or eliminating the expected quorums or their removal, in accordance with what is established by current law. Voting, however, can be delicate, as there may be conflicts of interest related to the percentage of participation of each partner in the company, making it necessary to respect the expected quorum.

With the recent change in the law, in addition to reducing the cost of control — since the controller will be the one who owns half plus one of the shareholding —, minority shareholders will havede;its previously established veto power around the legal quorum rule removed.

To deal with these issues, societies will need to establish a new formula for quorum, through a change in the social contract. The encouraging news is the establishment of an intermediate quorum (60%, for example) with the margin allowed by law.

Although the 2002 law imposed restrictions on limited companies, this mistake in the Civil Code is now being corrected. However, the change requires attention from the partners to make the necessary adjustments to the social contract. It is also important to highlight that the majority of family businesses and micro-enterprises in Brazil use this type of company in their contracts.

Data from the Ministry of Economy indicate the existence of 3.2 million active micro-enterprises, 745 thousand small companies and another 852 thousand companies of other types, but all within the spectrum of limited companies.

Thus, Law 14,451/22 affects almost all those who have limited companies in Brazil.