M&A in Brazil

Normally, acquiring a private company in the Federative Republic of Brazil involves concluding an agreement for purchase of a target entity’s assets/stakes. M&A deals in the Republic of Brazil commence with executing an MOU, LOI & NDA, all of which contain the main conditions of an upcoming transaction. Normally, M&A deals are financed with both loan & equity capital.

M&A deals in the Republic of Brazil are structured as an act of selling/purchasing interests/assets. Regardless of the type of transaction, any assets/liabilities related to an entity to be purchased get transferred to purchasers.

Legal Forms

There’s 2 main forms of commercial organizations:

• establishing an LLC in the Republic Brazil;
• registering a corporation in Brazil.

Foreign Capital

Funding M&A deals with foreign capital in the Republic of Brazil is prohibited. Here’s a list of industries where it’s disallowed:

• nuclear power;
• medical services;
• aerospace industry;
• agriculture;
• mass media.

Documentation

Documents required for acquisition of a private company in Brazil includes:

• an SAP agreement, 
• supporting documents (an NDA, MOU & shareholder agreement).

Brazil: DD of M&A Deals

DD of M&A transactions in Brazil is meant to uncover any accounting or legal problems that a target company may be facing. DD also helps prevent possible risks & determine mechanisms of protection.

Publicly Available Information

The most common form of publicly available documents are court orders. In them, buyers indicate existing legal claims against an entity to be bought.

Termination of Rights

Reasons for terminating M&A contracts include significant changes in an entity to be bought, extraordinary circumstances, inability of sellers/purchasers to get approval for going ahead with a deal.

Assurances, Guarantees & Compensations

Normally, sellers provide buyers with assurances, guarantees & compensation. Those include the ability of sellers to conduct a transaction & fulfill all their obligations.

Liabilities

Liability of sellers is limited to the losses suffered by purchasers due to closing an M&A deal in Brazil.

Taxes

Those seeking to conclude an M&A transaction in the Republic of Brazil should keep in mind that no transfer tax is levied on selling assets/stakes, unless assets include immovable property. If that’s the case, a 3% transfer tax is levied on such transactions.

A 34% corporate income tax is imposed on any capital gains  When it comes to physical persons, a progressive tax rate is applied

Personnel

Transferring shares of a company in the Republic of Brazil implies that the personnel of an entity to be bought retain their employment. The entity bears responsibility for any claims associated with its personnel, which includes claims that were brought before closing a deal. Sellers must dismiss & purchasers must rehire the majority of the personnel of an entity that has been bought.

Compensation

Pursuant to Brazilian legislation, personnel mustn’t be put in jeopardy due to an M&A deal. After purchasing a Brazilian company, buyers must ensure that all their benefits (including pensions)  remain in place.