(Im)possibility of disproportionate distribution of profits in Joint-Stock Companies

Until recently it was peaceful that there could be no disproportionate distribution of profits in Joint-Stock Company. However, with the enactment of the legal framework of Startups (LC nº 182/2021), which amended the law of S/A’s (law nº 6.404/1976), the discussions were revived.

Unlike limited companies, governed by the Civil Code, which provides for the possibility of disproportionate distribution, by provision in the social contract, the law of S/A’s did not mention anything. The understanding about the impossibility, in the cases of S/A’s, was built jurisprudentially and doctrinally, since there was no authorization or legal prohibition.

Thus, the legal framework for Startups provided that small companies, in cases of omission of the bylaws, could decide, at a general meeting, about the distribution of their profits, provided that the right of preferred shareholders to receive the fixed or minimum dividends to which they have priority is respected. In these cases, the mandatory distribution of mandatory dividends would even be removed.

However, the lack of clarity of Article 294 and the few months of validity of the amendments made to the S/A’s law brought uncertainty to the disproportionate distribution of profits in the S/A’s.

Therefore, without a position of the judiciary, jurists who understand the possibility of disproportionate distribution, made a more comprehensive interpretation of Article 294 considering the entire context of its Amendment and other provisions of the legal framework of Startups. Especially since the legal framework for Startups has provided for more liberal and de-bureaucratized guidelines, allowing societies to be more competitive.

For these jurists, these principles were not foreseen for nothing, since they are precisely based on the flexibility and dynamism that startups have brought to the market. In this context, the possibility of disproportionate distribution of profits in S/A’s would be compatible with the liberal and de-bureaucratized guidelines provided for.

In addition, the disproportionate distribution of profits makes it possible for the right to realize them to be linked to the shareholder, making it possible for each shareholder to be distributed percentages according to their participation in the activity and not only in the share capital. The very personal nature of the disproportionate distribution would be compatible with the scenario brought by startups, in which some enter society only as investors and others by the ability to undertake and/or by possessing the necessary know-how.

More conservative jurists understand that, since the amendment to Article 294 was made in isolation, that is, without other articles being amended together, especially Article 109 of the S/A’s law, which lists the rights of shareholders, the understanding until then consolidated remains unchanged. This is because by Article 109 of the law of S/A’s the bylaws or the general meeting cannot withdraw some rights of shareholders, among which we highlight the right to participate in profits.

Given the short duration of the amendment of Article 294 of the S/A’s Law, uncertainty will undoubtedly be present in the disproportionate distribution of profits in S/A’s.

In this scenario, even though minority shareholders do not have decision-making power at General Meetings, it is extremely important that their right to receive profits is not impaired if proportional distribution is adopted. In such a way that the disproportionate distribution must obey objective and fair parameters, which cannot mean the receipt by some and the non-receipt by others, that is, even if disproportionately, the company’s profits must be distributed to all shareholders, observing objective and rational parameters for both.

Thus, the criteria that led to the disproportionate distribution of profits, which, even if it does not observe the rule of mandatory dividends, must respect the minimum pre-fixed to preferred shares, so that the General Meeting will not be able to set a lower percentage or, then, not prioritize its payment.

Even if all precautions are taken, it is not possible to affirm that the disproportionate distribution of profits will be understood as valid by the judiciary, which is why the risks of this practice must be weighed when using the Institute.

Anna Paula Piovesan Pinheiro

Lawyer, graduated in law, with emphasis in Civil Law, from Universidade Presbiteriana Mackenzie, postgraduate in Business Law from Pontifícia Universidade Católica do Rio Grande do Sul-PUC – RS, enrolled in the Brazilian Bar Association, São Paulo Section (OAB/SP) (2021). Author of articles. Lawyer at TM Associados.

Leonardo Da Vinci

Lawyer, graduated in law, with emphasis on Business Law, from Universidade Presbiteriana Mackenzie (2012), enrolled in the Brazilian Bar Association, São Paulo Section (OAB/SP) (2012). Postgraduate and Specialist IN Business Law from the São Paulo School of Law of the Getúlio Vargas Foundation (2014), Master in political and Economic Law from the Mackenzie Presbyterian University (2017), author of books and articles, Lecturer, University professor, member of the São Paulo Lawyers Association (AASP), member of the corporate law and mergers and Acquisitions Committee of the International Bar Association. Founding partner of TM Associados.