Patrícia Bruzzi Carrion Paraguay
Lawyer at Marcos Martins Advogados
Succession planning can be defined as a tool that makes it possible to evaluate alternatives and create the appropriate structure for the future, paying attention to the continuity of certain assets, which in our analysis will concern business companies.
There are a number of options when it comes to defining the type of company and its restructuring, with a view to succession planning.
One of these options is the transformation of the limited liability company into a joint stock company and vice versa.
To understand this transformation, it is first important to understand the main differences between these two types of company.
A limited company is one in which the prevailing intention is personal, i.e. the personal characteristics of each partner are very important in the formation of the company, and the social affection existing between the partners forms the bond between them. The joint stock company, on the other hand, is characterized by pecuniary intent, i.e. the bond that unites the partners is capital, the common investment to generate results.
Although the types of company are clearly different, there is a model of company in the current Brazilian scenario that can be considered a hybrid between the two types described above. This is the privately-held corporation with family characteristics. These companies, despite having a characteristic linked to the capital and investment of the partners, also have a strong identification of corporate affection between them.
At this point, then, it is important to distinguish between publicly traded and privately held companies in order to better elucidate the issue. The major difference between publicly traded and privately held companies is in relation to the trading of shares on the capital markets, specifically the stock exchanges, with the need or not for shares to be offered to the public. Thus, a publicly traded company must offer and trade its shares on the public market, generally stock exchanges, while a privately held company trades its shares among specific people, not to the general public.
As the offer of the privately-held corporation is made to certain people, the importance of the personal nature of the shareholder is demonstrated, which refers to the hybrid legal type that exists in Brazil, which is the privately-held corporation, which we can consider to have social affection.
In this line of thought, due to succession planning, it is possible for a limited liability company to be transformed into a public or private company. This transformation can take place for many reasons, but one of the main ones is the importance of capital in the company itself.
This transformed company will now be governed by the Corporate Law (6.404/76). Some important characteristics of this new company are the share capital will be divided into shares, and there may be shares with or without voting rights, with different classes, and even with the right of veto; the limitation of the liability of the shareholders will be restricted to the price of the shares subscribed; new funds will be raised through the issue of securities; the creation of new bodies such as the General Shareholders’ Meeting, Ordinary or Extraordinary, the Board of Directors and the Fiscal Council; the express possibility of signing a Shareholders’ Agreement, and the respective specific execution of such an Agreement; publication of all relevant acts; distribution of profits observing political and patrimonial rights; among others. All these characteristics make up a more complex company, in principle, but one that is more organized and professional. These characteristics are fundamental for a company in which capital is becoming more important.
As a result of all these structures and characteristics, the corporation starts to implement organizational and control mechanisms, and consequently becomes more concerned with the governance of the company itself. Adriana Adler makes an interesting point about family companies, by defining the company itself as a family business or as a family business, and this definition is extremely important for planning a company, whether it be due to its constitution, reorganization, transformation, growth, succession, among other reasons. Since a “family business is not just about the business itself”[1], the distinction between what is most important will imply the definition of the most appropriate type of company, for example, in a corporate restructuring, in the transformation of a limited company from a family business to a joint stock company, in a family business.
An important element in the transformation and professionalization of the company is the separation of the company’s assets from the family’s assets, which in many family companies end up getting mixed up. It is important that there is no confusion of assets. In addition, it is important to reduce the degree of subjectivity between the partners and each other, and between the partners and all those interested in the company, commonly known as “stakeholders”. The creation of a board is a way of formalizing this new, clearer, more objective and formal policy, which can even decide on a remuneration and capital policy, for example.
But unfortunately, not all planning is perfect, and many adversities can arise within such planning, so regardless of the type of company or succession planning defined, the corporate reorganization process is never really finished, because over time adjustments become the way to update the planning. This unpredictability, inherent in human relations, is why it is so important to have a specialized lawyer who is available to plan, and to readjust the planning, whenever the binomial of usefulness and necessity is seen.
Marcos Martins Advogados is prepared and makes its up-to-date Corporate Advisory team available to work on corporate restructurings as part of succession planning, presenting creative and safe solutions for its clients and interested parties.
REFERENCES
PRADO, Roberta Nioac; PEIXOTO, Daniel Monteiro; SANTI, Eurico Marcos Diniz. Estratégias societárias, planejamento tributário e sucessório. 2. ed. São Paulo: Saraiva, 2011.
PRADO, Roberta Nioac. coord. Aspectos relevantes da empresa familiar: governança e planejamento patrimonial sucessório. São Paulo: Saraiva, 2013.
[1]ADLER, Adriana. Building good relationships in family businesses. In:PRADO, Roberta Nioac. coord. Aspectos relevantes da empresa familiar: governança e planejamento patrimonial sucessório. São Paulo: Saraiva, 2013.
