The firm’s experience advising foreign companies that acquire companies in Brazil demonstrates the greatest challenges of companies entering the Brazilian market, from a legal and regulatory standpoint. See the main points in which specialists can assist:
1. Understanding the regulatory requirements to operate in the country. For example, in the food, cosmetics and medical-hospital segments, the regulatory agency is the National Health Surveillance Agency (Anvisa), which can be an important barrier to entry in the market because, first, the registration requirements can be complex and, second, there is the long waiting time for the registrations.
2. Understanding the tax burden to operate in the country. In federal taxes, the tax burden is the same in all States of Brazil. However, the Tax on the Circulation of Goods and Services (ICMS), which is a state tax, has special legislation in each state of the federation. There are also states that grant tax benefits and incentives for importation and for industrialization. Therefore, it is important to assess whether there will be activity of importation of inputs and industrialization, or only importation and resale, in order to decide on the location of installation and the tax burden.
3. Extensive due diligence on the company to be purchased, mainly in the labor, tax, environmental, regulatory and accounting areas.
4. The conduct of the due diligence and of the negotiations must consider whether the foreign company will make the acquisition to be an investor, that is, will hold up to 49% of the company’s capital stock, or whether the foreign company will make the acquisition to effectively operate in the country, that is, will hold more than 51% of the company’s capital stock. The approaches are different. As an investor, the importance of post-M&A, the rules of compliance, full disclosure information and accountability. As a controlling shareholder, the importance of post-M&A, the rules of broad control and decision-making by the foreign partner.
5. In the M&A transaction, with respect to the cash out payment, we recommend that they be linked to targets and that there be no forfeiture in contingencies, maintaining an escrow account. The cash in payment linked to an investment schedule.
6. The main documents signed in an M&A are:
· Letter of Intent: basic rules of the negotiation and the due diligence.
· Quota/Share Purchase and Sale Agreement: rules for the acquisition of the equity interest.
· Partners’/Shareholders’ Agreement: rules of the relationships between the partners/shareholders, rights and responsibilities of the partners/shareholders, voting rules, deliberation quorums, rules for the sale of quotas/shares and for withdrawal from the company.
· Amendment of the articles of association (if the company is a limited liability company) or Minutes of the General Meeting (if the company is a closely held corporation).
7. The foreign company in Brazil must be represented by a foreigner with a residence visa or by a Brazilian. The appointment of the representative must be made by means of a power of attorney granted in the country of origin, in the local language and apostilled.
8. Estimated timeframes in M&A transactions:
• Negotiations: depends on the client and the selling party.
• Due diligence + tax burden study: 90 days.
• Drafting and review of the contracts: 60 days.
To learn more details and possibilities of how to assist in advising companies, visit our website or talk to our team.
Kun Young Yu, Head of the Korea Desk at Lassori
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