The transfer of shares or quotas results in a transfer of not only the target’s business, assets, rights, contracts, and employees, but also of all existing liabilities and contingencies.
- Transfer of the whole target company (corporate reorganization procedures may be necessary as a preparatory measure in order to segregate assets in a newco to be sold by means of a drop-down or a spin-off, for example);
- Any prior shareholder or board approvals to be obtained for share transfers by seller;
- Prior governmental and/or regulatory authorizations may need to be obtained,
- Prior Antitrust authorities (CADE) approval may be required.
In a share deal the recommendation is for a broad detailed legal due diligence. In general, main aspects to be verified are licences and permits; labour and social security aspects; tax aspects; inventory; contracts; corporate aspects; real estate; insurance; IP rights; antitrust; compliance; environmental; affiliated transactions.
In Brazil, it is of utmost importance to obtain certificates from all Courts with jurisdiction over the seller’s and target’s head offices, branches, domicile to verify the existence of any legal claims that may impact the transaction. There are also several administrative certificates that should be obtained.
Moreover, depending on the industry of the target, specific issues must be verified.
Specificities linked to the share transfer agreement
- The SPA needs to be carefully tailored to include appropriate representations, warranties, indemnities (in particular regarding labour, tax and environmental liabilities, among others), and collaterals,
- No mandatory content required by law,
- Foreign ownership of shares must be registered at the Central Bank of Brazil, through its electronic registration system, Sisbacen.