By: Antonio Mazzuco and Luiz Gustavo Doles

There is much debate about the role of minority shareholders in public limited companies. They are an important figure in the capital structure of many companies and must be protected given their vulnerability to majority shareholders.

However, little is said about the abuses that minorities can make of this protection.

It can be stated that the minority shareholder will incur abuse when his behavior does not contemplate, in the specific case, the maintenance of balance between shareholders and the satisfaction of their interests as a cohesive group.

Thus, the abuse of power by the minority shareholder consists of a distorted use of individual or minority prerogatives to acquire, directly or indirectly, unjustified economic advantages to the detriment of the company-institution or other shareholders, a typical case of pretextual challenge, for example, of the resolution to approve the balance sheet for the year, or reckless reporting to the court.

In other words, the opposition of the minority will be considered abusive if it benefits exclusively itself, preventing or reducing the advantage that would accrue to society.

It is worth noting that abuses committed by shareholders may arise from their actions or omissions. Abuse resulting from actions occurs when the shareholder acts in a manner that conflicts with the interests of the company and is in disagreement with the general duty of loyalty imposed on all shareholders. Abuse resulting from omissions occurs when the minority shareholder fails to act in a clear manner.

Furthermore, it is important to mention that Brazilian corporate legislation authorizes, provided certain requirements are met, the filing of legal actions by shareholders against the company itself or its administrator, in these cases.

The filing of corporate lawsuits with the purpose of hindering the progress of corporate business can also be a form of abusive exercise of a valid right.

The minority shareholder's vote, in general, does not prevail. Therefore, the abuse of voting rights by the minority appears as negative behavior to follow the most beneficial deliberation possible for the company. It emerges, therefore, from the obstructive behavior to the most advantageous decision for the company. The recognition of rights to the minority for their protection does not mean consent to exercise these rights to any extent and under any pretext, since the simple attribution of rights to

a specific group of subjects before another demonstrates the viability of the abusive imbalance also promoted by the minority, whose acceptance involves a question of proportionality.

Therefore, the implementation of a governance system is fundamental and indispensable to manage the organizational structure with very clear rules and regulations, so that it does not result in managerial damage to the companies that make up the group, partners or shareholders, especially if they also exercise management, giving rise to abuse of control power and abuse of the encouraged majority.

Finally, in view of the above, it is important to emphasize that there are two distinct situations provided for by law in the case of abuse of power by a minority shareholder: in certain cases, the duty to compensate (therefore linked to the occurrence of damage) is imposed on the minority shareholder for the abusive conduct; in others, only certain conduct is classified as abusive, disregarding the damage and fault and then remaining silent as to the sanction. However, the Corporations Law imposes compensation for losses and damages if the abuse causes harm to the company or to other shareholders.

Therefore, the forms of restraint against acts carried out in evident abuse of power must be measured according to the degree of severity and negative repercussions for the companies that make up the group, as well as the harmful repercussions on the individual sphere of the minority partner/shareholder, whose property rights are violated.            

With the collaboration of Andrea Carvalho.