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.
There’s 2 main forms of commercial organizations:
- establishing an LLC in the Republic Brazil;
- registering a corporation in Brazil.
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;
- mass media.
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.
Liability of sellers is limited to the losses suffered by purchasers due to closing an M&A deal in Brazil.
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
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.
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.
Looking to buy a business in the Republic of Brazil? Need advice on the regulation of M&A deals in the Federal Republic of Brazil? Please consider contacting IQ Decision UK.