The enactment of Complementary Law 182/2021, known as the Startup Legal Framework, introduced significant amendments to Law 6.404/1976 (the Brazilian Corporations Law) and Complementary Law 123/2006. These changes aim to foster an environment conducive to the growth of startups and innovative companies in Brazil.
Before 2021, the legislation required that, for corporations, shares of the same class conferred equal rights to their holders, and dividends were distributed strictly proportional to each shareholder’s share capital participation. This legal framework aimed to ensure a fair distribution of the company’s profits, proportionate to each shareholder’s capital contribution.
The Startup Legal Framework, effective in 2021, introduced a major change by allowing disproportionate dividend distribution for closely held corporations with annual gross revenue up to R$ 78 million. This change was incorporated into Article 294 of the Brazilian Corporations Law, which now states:
“Art. 294. A closely held company with annual gross revenue of up to R$ 78 million may:
§ 4º If the bylaws are silent on the distribution of dividends, they shall be freely determined by the general meeting. In this case, the provisions of Article 202 of this law do not apply, provided that the rights of preferred shareholders to receive fixed or minimum dividends to which they are entitled are not harmed.”
Thus, a closely held company within the stated revenue threshold can freely determine dividend distribution at its general meeting, provided the rights of preferred shareholders are respected. This increased flexibility allows companies greater autonomy in managing their financial resources, enabling a dividend distribution that aligns more closely with the company’s strategic and operational needs.
To mitigate legal risks, disproportionate dividend distribution must be restricted to shares of the same class, as stipulated in Article 109 of the Brazilian Corporations Law:
“Art. 109. Neither the bylaws nor the general meeting may deprive shareholders of the following rights:
(…)
§ 1º Shares of each class shall grant equal rights to their holders.
(…).”
This modification intends to encourage investments in startups and innovative companies, streamlining the adoption of models like vesting and stock options. These incentives can attract and retain top talent, driving business growth and fostering long-term success.
Maintaining a clear and transparent structure is essential to avoid perceptions of inequity among shareholders and ensure rigorous accounting practices. This transparency will help all shareholders understand the rationale and benefits of disproportionate dividend distribution, minimizing potential conflicts and safeguarding the company’s internal cohesion.
