I OVERVIEW

i Deal activity

In the past few years, economic growth slowed in Brazil while the country suffered a period of political instability. Because of the political and economic crisis, major projects across numerous sectors were put on hold and domestic companies faced a credit crunch. This scenario, however, seems to be changing with the recent election of the right-wing President Jair Bolsonaro. A positive, yet cautious, sentiment has possessed investors with the recent election of a far-right candidate after more than a decade under a left-wing government marked by corruption and fraud scandals. In the first days of Bolsonaro's government, the stock exchange index Ibovespa rose and the US dollar registered a significant decrease, suggesting a positive movement in Brazil's political and economic landscape.

President Bolsonaro has gained support for his campaign promises to fight corruption, privatise state assets, reduce bureaucracy and change the public pension system. According to market analysts, the promises made by the new government have encouraged purchases in the stock market and strengthened Brazil's currency, the real, against the US dollar. Investors are now awaiting the implementation of the new government's proposals, especially the reform of the costly pension system.

Although the real has experienced a smooth appreciation in the past few years, the currency's hefty devaluation in previous years, along with Brazil's competitive potential and vast market, means the country remains an attractive destination for international private equity investment.

Not surprisingly, 2018 saw signs of a potential effective economic recovery, with an increase of 4 per cent in the number of mergers and acquisitions (M&A) between January and October, compared to the same period in 2017. The growth was most noticeable in the areas of information technology and financial and public services.2

On the other hand, because of market instability produced by the presidential election, there were only three initial public offerings (IPOs) in 2018,3 a significant decrease from 2017, when 10 companies went public. Nonetheless, according to the CEO of B3,4 up to 30 Brazilian companies could be ready to go public in 2019, once the newly elected president's proposed reforms have been passed in Congress.5

In terms of total investments, data from the Brazilian Association of Private Equity & Venture Capital (ABVCAP) and KPMG6 indicates that private equity investment in Brazil during 2017 amounted to approximately US$3.93 billion,7 an increase of 34.5 per cent compared with 2016.8 Also, the number of companies that invested in Brazil was considerably greater, rising from 157 in 2016 to 175 in 2017. The average investment amount was US$22.45 million.9 Analysis of the transactions carried out in 2017, compared with 2016, shows a significant level of investment in the infrastructure sector, representing 21 per cent of the total amount invested in 2017. The education, energy, and food and beverage sectors were also much in demand, representing, jointly, 37 per cent of private equity investments made in 2017.

The same study by ABVCAP and KPMG indicates a substantial growth in divestment transactions in Brazil in 2017, amounting to US$2.6 billion10 – 103 per cent higher than the US$1.2 billion recorded in 2016.

ii Operation of the market

Brazilian practice draws a distinction between the portfolio manager and the administrator of an investment fund. The activity of both entities, regardless of the level of effort made in raising resources, is subject to the rules issued by the Brazilian Securities Commission (CVM). The operation of private equity funds is thus subject to the rules of the CVM.

Foreign private equity funds are not subject to the rules of the CVM when investing in Brazil. They are simply classified as foreign investors, and as such are subject to the general rules issued by the Central Bank on registration of capital invested in Brazil. As this book covers other jurisdictions individually, we focus here on private equity activities in which the portfolio manager is located in Brazil.

Brazilian private equity funds are subject to registration with the CVM and must have a manager, and an administrator that must be a financial institution authorised to function by the Central Bank. The manager exercises the most relevant function, as it is directly responsible for managing the portfolio, including investment and divestment decisions. It is important to note that the administrator and the manager can be the same entity.11

According to data published by the Brazilian Association of Financial and Capital Market Entities (ANBIMA),12 in November 2018, the largest private equity fund managers in Brazil in terms of assets were BB DTVM SA, Bradesco, Itaú Unibanco SA, Bradesco, Caixa and Banco Santander (Brasil SA).

The CVM's rules basically allow an administrator and manager to obtain remuneration in two formats, through administration and performance fees, to be divided between the administrator and manager as agreed between them. The administration fee is charged on a monthly basis as a percentage of the net assets. The performance fee, in turn, is only paid by the investor at the moment of redeeming an investment, as a percentage of the gain, calculated according to the criteria established at the time of registering the fund with the CVM.

In general, the manager's remuneration is substantially higher than the administrator's, given that the latter usually only distributes the shares and takes care of treasury matters, while the former manages the portfolio by making the investment and divestment decisions.

Average administration fees are historically around 2 per cent a year of the net assets or committed capital. In turn, the performance fees can vary considerably, but they are commonly around 20 per cent of the profit generated above a benchmark rate of return set in the fund's by-laws. These fees are paid at the time of redeeming the investment, after adjusting for inflation.13

In many cases, the fund names a representative to hold an executive position with the most important investee companies. In this situation, the person in question can receive a stock option plan or other incentive, with the cost in the final analysis passed through to the fund's investors in proportion to the holding in the company in question.

With respect to the purchase or sale of an equity stake, the standard procedure includes the following steps:

    1. negotiation of the terms of the deal, with the signing of a memorandum of understanding or term sheet;
    2. the carrying out of a due diligence process by the potential buyer; tax and labour liabilities are usually the most sensitive concerns;
    3. negotiation of the definitive documents, including the share purchase agreement and shareholders' agreement (as the case may be);
    4. signing;
    5. submission to the Administrative Council for Economic Defence (CADE) if the deal is subject to antitrust notification; and
    6. closing.

This process can vary according to the complexity of the deal and other particularities. The average time between the issue of the term sheet and the closing of the transaction is around four months if the deal is not subject to approval by CADE. The CADE rules are broad enough to cover a good number of private equity transactions and, where CADE rules apply, the acquisition documents are signed on condition that the deal can only be closed after approval by CADE.

Another common way to sell a corporate stake when there are various interested parties is by competitive bidding. In this case, the negotiation starts with several interested parties, who analyse the preliminary data on the company and submit proposals. Those with values below the expectation of the sellers are eliminated from the running, after which only the prospective buyers with the highest valuations continue the negotiation process, until a final buyer is identified.

ii LEGAL FRAMEWORK

i Acquisition of control and minority interests

Private equity funds domiciled in Brazil are set up in the form of equity investment funds (FIPs) and are subject to the regulations of the CVM.14

FIPs must invest their assets in shares, subscription warrants, debentures and other securities convertible into or exchangeable for shares of corporations, both listed and unlisted, as well as securities that represent quotas of limited liability companies, which is the most common company type in Brazil, especially for start-ups.

Since FIPs are subject to the regulations of the CVM, they must submit all relevant documents, such as balance sheets and portfolio composition, and report any intention to issue new fund quotas, replace the administrator or amend the by-laws, and report any pending spin-off, merger, consolidation or liquidation.

Historically, the rules on FIPs have required their active participation in the decision process of the portfolio companies, with them having effective influence in defining management strategy and policy. This is generally achieved by appointing members to the board of directors. The right of the FIP to take part in the decision-making process can also occur in one or more of the following ways: by holding shares in the controlling block; through a shareholders' or voting agreement; or by any other agreement that ensures the fund has effective influence. The investee companies must also satisfy certain corporate governance requirements.15

Therefore, the standard investment model of the FIP is to acquire shareholding control or a relevant stake in the controlling block. Control in Brazilian law is defined as holding rights that ensure having, on a permanent basis, the majority of the votes in the decisions of the general meeting and the power to appoint the majority of the administrators (directors and officers). Participation in the controlling block is defined as being a party to a shareholders' or voting agreement that guarantees influence in the decisions of the company.

Nevertheless, according to CVM Instruction No. 578 of 30 August 2016, FIPs are exempted from the requirement of participating in the decision-making process if the investment is reduced to less than half of the original amount invested and constitutes less than 15 per cent of the company's corporate capital; or if the book value of the investment is reduced to zero.

Foreign private equity funds can set up a FIP in Brazil as a vehicle to make investments. As with any other foreign investment, the capital must be registered with and follow the rules of the Brazilian Central Bank.16 Income arising from investment in FIPs and gains arising from the sale or amortisation of FIP quotas by non-resident investors that are not resident or domiciled in a favourable tax jurisdiction17 is currently taxed at zero per cent,18 provided that the following requirements are met:

  1. the non-resident investor19 does not hold, individually or with related parties (as defined by the applicable legislation), 40 per cent or more of all shares issued by the fund (the shareholding test)20 or does not have the right to receive 40 per cent or more of the total income generated by the fund (the economic test);
  2. the fund does not have in its portfolio, at any time, debt securities in an amount exceeding 5 per cent of its net worth, unless the securities correspond to convertible debentures, subscription warrants or public bonds;
  3. the fund is compliant with additional portfolio requirements provided by the CVM regulations, which currently require at least 90 per cent of the FIP portfolio to be composed of shares, subscription warrants, simple debentures or other securities convertible or exchangeable into shares issued by corporations and either closely held or publicly held companies, as well as securities representing equity participation in limited liability companies, provided that the FIP participates in the decision-making process of the investee companies, with effective influence on the definition of their strategic policies and management; and
  4. in addition to the provision mentioned in item (c) above, at least 67 per cent of the FIP's portfolio is composed of shares of corporations, or debentures that are convertible into shares and subscription warrants (allowed assets).

Additionally, under another tax incentive regime,21 and provided that all quota holders are exclusively non-residents, all gains, including capital gains paid, credited, delivered or remitted to beneficiaries resident or domiciled outside Brazil (unless situated in a favourable tax jurisdiction) that are produced by investment funds are exempt from income tax if the following general cumulative requirements are met (but an analysis per asset to be invested is advisable):

  1. the quota holders must be exclusively non-residents; and
  2. the fund regulations must provide that its fund application is made exclusively in:22
    • assets required by tax legislation;
    • cash deposits;
    • assets that are also exempt from income tax, or taxed at a zero per cent rate, when the beneficiaries of the gains derived from those assets are residents or are domiciled outside Brazil (unless situated in a favourable tax jurisdiction); or
    • assets traded in financial and capital markets that are exempt from taxation, provided they are negotiated by the funds under the same terms and conditions set out by law to qualify for the tax exemption.

In addition, foreign exchange transactions carried out in Brazil are subject to the tax on financial operations regarding exchange agreements (IOF) for inflow and outflow. The standard rate is currently 0.38 per cent for most foreign exchange transactions. IOF is levied at a zero per cent rate on the inflow and outflow of remittances into related investments made by non-Brazilian residents in the Brazilian financial and capital markets. There are other specific rates or exemptions that may apply to certain transactions. Although unlikely in the current economic scenario, the IOF rate, because of its regulatory rather than budgetary purpose, may be increased at any time to a maximum of 25 per cent by the government.

Notwithstanding the tax benefits listed above, the requirement to engage an administrator and manager approved by the CVM to structure a local FIP prompts most international private equity players to choose an offshore structure to invest directly in Brazil, outside the capital market. This means that the investment will be classified as a foreign direct investment, regulated by Law No. 4,131/62. A foreign direct investment can occur by incorporating a new company or investing in an existing one (a limited liability company or corporation). In some cases, the direct investment involves setting up a joint venture with a Brazilian company or other investors, and the signing of shareholders' agreements, investment agreements or loan contracts, among other mechanisms. In addition, for foreign direct investment, both the foreign investor and the receiving company in Brazil must be registered with the Central Bank.

It is also worth mentioning that, as of 27 December 2018, recent amendments introduced by the Brazilian Federal Revenue (RFB) in Rule No. 1,863 (IN 1,863/2018), governing the registration of national and foreign entities with the National Registry of Legal Entities, have established the obligation for foreign shareholders of Brazilian entities, and also for Brazilian entities,23 to provide the RFB with information on the relevant corporate chain, including trusts and foundations, up to the individuals deemed the ultimate beneficial owners, defined, with a few exceptions, as the (1) the individual or individuals who either directly or indirectly own, control or significantly influence24 the legal entity; or (2) the individual under whose name a given transaction is performed. This obligation must be complied with during any update of any of the Brazilian or foreign entity's RFB registry data or, in the absence of such an update, by 26 June December 2019 (180 days from the publication of IN 1,863/2018).

ii Fiduciary duties and liabilities

FIP administrators and managers must observe the standards of conduct established by the CVM and are liable for losses caused to investors when they act with intentional misconduct or culpability (defined as negligence, imprudence or malpractice) in violation of the law, the CVM rules or the FIP's by-laws. The CVM has also issued specific rules for portfolio managers of funds,25 and any infractions subject them to penalties if they are found guilty in an administrative sanction proceeding conducted by the CVM.

As a complement to the CVM rules, ABVCAP and ANBIMA have issued their Regulation and Best Practices Code26 for the FIP market with the aim of raising fiduciary standards and promoting best practices, and to allow the gradual integration of the Brazilian investment fund market with the international private equity market. Adherence to this Code is mandatory for those members of ABVCAP and ANBIMA engaging in administration and portfolio management activities.

Representatives of the manager named as directors, officers or other executive positions in the investee companies also have the duties to the company required of administrators in general by the Law of Corporations. Accordingly, they must employ, in the exercise of their functions, the same care and diligence employed by all active and honest people in handling their own affairs, following the law and the company by-laws; they must always act in the company's best interests; and they must satisfy the greater public good and the social function of the company.

The fund administrators or managers must also observe the duties attributed by the Law of Corporations to shareholders. Accordingly, they must exercise the right to vote in general meetings in the interest of the company and can be held liable for any damages arising from the exercise of this voting right.

iii YEAR IN REVIEW

i Recent deal activity

Despite economic and political instability in 2018, important deals were carried out during the year. Notable among these was the launch of the first Brazilian 'unicorn' (the term for start-ups valued at over US$1 billion) when Chinese company Didi Chuxing acquired the Brazilian mobile phone taxi-hailing application developer 99 Taxis.

PagSeguro, a Brazilian payments company, also surpassed the US$1 billion valuation, becoming the biggest public listing of a Brazilian company when its launch on the New York Stock Exchange raised US$2.6 billion. PagSeguro's stock increased by 35.8 per cent on its first day of trading – an appreciation that saw the company achieve a stock market valuation of U$8.99 billion.

Nubank, a Brazilian credit card start-up, has also qualified as a Brazilian unicorn, becoming the biggest start-up in Latin America, with investment provided by the Chinese company Tencent.

Among other important transactions carried out in 2018, the global private equity fund Advent International acquired a majority stake of 80 per cent in Walmart Brazil, the third-largest food retailer in Brazil. Also in 2018, leading global private equity firm HIG Capital, which specialises in investments in medium-sized companies and has more than US$27 billion of capital under management, acquired Tecfil, Brazil's largest automotive filter manufacturer. Tecfil serves the replacement market for the light and heavy vehicle industries in Latin America.

Standout investments were also made by Aqua Capital, a Brazilian private equity firm focusing on growth investments in mid-market companies in South American agribusiness and in Brazil in particular. Throughout the course of 2018, it invested approximately US$100 million in six companies, most of them engaged in the distribution of commodities.27

Another type of investment progressively gaining strength in Brazil is the practice of corporate venture capital (CVC), which consists in the investment by well-established institutions in early-stage companies outside the corporate chain of the investing company. The main purpose of CVC is to develop a product or a specific market without having to establish an internal 'project and development' department, which, at times, may prove more time-consuming, demanding and costly than investment in an early-stage company. CVC goes beyond a customary M&A transaction, although the process and the documentation involved may be similar. In CVC transactions, the investing company and the target company establish certain common goals so that the investment may be successful. The investing company may also provide the target company with management and marketing expertise, strategic direction or a line of credit, or a combination of these.

Embraer SA, the Brazilian business conglomerate that manufactures commercial and military aircraft, among other things, is one example of CVC in practice in Brazil. In 2013, Embraer was one of the first Brazilian companies to launch a CVC FIP to invest in early-stage companies mainly located in Silicon Valley and with a focus on the aerospace sector. This CVC FIP has the Brazilian National Bank for Economic and Social Development as one of its shareholders. The bank Bradesco also has a corporate venture programme in Brazil, named InovaBRA, which consists in a FIP that invests in start-ups, and which performs actively as a minority shareholder through participation on boards of directors and mentoring. Other Brazilian companies from various sectors of the economy – including banking (BB, BMG, Itaú, Santander), industry (Gerdau, Natura, Votorantim) and retail (Pão de Açúcar, Magazine Luiza) – also invest in early-stage companies for the purpose of generating business innovation.

ii Financing

The scenario for financing of private equity changed substantially in 2016 with the issuance of CVM Instruction No. 578,28 which aimed to unify and modernise the rules on incorporation, operation and management of FIPs, and also consolidated previous amendments to the provisions on the structure of, and guidelines for, FIPs.

The main changes introduced by CVM Instruction No. 578 include the following: FIPs are now able to invest in limited liability companies and in non-convertible debentures;29 they can invest up to 20 per cent of their net equity in offshore private equity assets; and they can have authorised capital, which means that the administrator may issue new quotas in FIPs without requiring investors' reapproval.

CVM Instruction No. 578 also created different categories of FIPs, such as the FIP: Seed Capital, which allows the use of a FIP, under certain conditions, as a vehicle to invest in start-up companies. Furthermore, the administrator may create different classes of quotas, which may have different rights, permitting differentiation as to, among other things, hurdle rates; management fees and performance fees; the timing of capital calls, amortisation and redemption; and veto rights and the appointment of committee members.

To harmonise Brazilian accounting principles with international standards, FIPs qualified as investment entities must mark portfolio assets according to their fair value, while FIPs that do not qualify as investment entities must register their investments in accordance with the rules applicable to affiliates of publicly traded companies, and are now required to prepare and submit audited financial statements whenever there is a material change in the fair value of the investment company during the fiscal year. In this regard, CVM Instruction No. 579 was issued on 30 August 2016,30 creating new rules for the provision of financial statements of FIPs, outlining the accounting methods for the classification of assets and liabilities.

iii Key terms of recent control transactions

Acquisitions of control are characterised by the signing of documents that protect the purchaser from possible liabilities not reflected on the balance sheet at the time of closing, including instruments to adjust the price, escrow accounts and similar arrangements. Additionally, with the alteration of the rule for prior submission of transactions involving a change in control to CADE, the moment of closing now occurs in some cases several months after execution of the binding documents. This makes it more necessary than ever to include protective clauses covering price adjustment and material adverse change.

Where a particular shareholder has great importance in the development of the company's business plan, a lock-up clause can be used, preventing this shareholder from selling the relevant shares during a certain period, to assure that the transition to management by the new controllers will proceed as smoothly as possible.

In transactions involving listed corporations, the transfer of control can only be contracted under the condition that the purchaser launches a public tender offer to acquire the shares of the other owners.31

iv Exits

Outbound transactions carried out in the past year were low on account of the political scenario and instability in the Brazilian market, with it being more difficult to define prices and meet market demand. The estimate of divestment for 2018 is around US$903 million, whereas the year before saw an exit record of US$2.5 billion.32

Divestment by way of an IPO is a typical exit strategy in the Brazilian market. One example is the investment made in 2012 by FIP Carlyle Group to acquire 85 per cent of the stock issued by Ri Happy, Brazil's largest toy retailer. Now, Carlyle Group intends to launch the IPO of the company and use the funds raised to open new stores. The IPO was scheduled for 2018 but was postponed because of low demand from investors. The expectation is that Carlyle Group will resume the listing of Ri Happy in 2019.

Divestments transactions are expected to pick up at the beginning of 2019.

iv REGULATORY DEVELOPMENTS

Private equity deals can be carried out by means of offshore structures, with capital raising and legal structuring done outside the country, resulting in a foreign direct investment from the standpoint of the Central Bank; or through transactions carried out by funds domiciled in Brazil, subject to the rules of the CVM.

Besides issuing rules on the capital market and investment fund industry, the CVM oversees the activities of players and enforces rules through investigations and administrative proceedings. Punishments for wrongdoing range from a formal warning to the application of fines and even a prohibition on operating in the capital market.

In addition, many sectors of the Brazilian economy are subject to the specific oversight of regulatory agencies, some of which regulate M&A transactions, enforce technical, legal and financial requirements to be observed by the parties involved, and have to be consulted before changes of control are concluded. This means, in effect, that their approval must be obtained before closing a deal and, where this is the case, both the regulatory agency and CADE have the power to block transactions.

v OUTLOOK

In light of the above, companies, financial institutions and investors are waiting for the implementation of the proposals submitted by the new Brazilian government, which would rebalance the public accounts and, consequently, attract new investment.

Moreover, the private equity industry in Brazil has been growing strongly in the past couple of decades, and there is great demand for investment in various sectors of the economy, especially in Brazil's infrastructure, given the potential for privatisation of state-owned companies.

The private equity investment environment has also been continuously modernising and adjusting to the reality of the international markets. Other measures to expand the private equity market are being put in place, such as specific rules for investments in special segments or in organised over-the-counter markets.

There are major challenges to be overcome before investments can be made in the country, such as the complex and burdensome tax system and the high level of regulation of the economy. It is thus necessary to retain specialist advisers before investing in Brazil.


Footnotes

1 Marcus Vinicius Bitencourt, Alex Jorge and Luiz Augusto Osório are partners and Marcelo Siqueira, Camila Caetano Cardoso and Laura Angrisani are associates at Campos Mello Advogados in cooperation with DLA Piper.

2 PwC, 'Fusões e aquisições no Brasil', October 2018. Available at www.pwc.com.br.

3 Information available at www.bmfbovespa.com.br.

4 B3 S.A. – Brasil, Bolsa, Balcão is the securities, commodities and futures exchange operating in Brazil, which resulted from the merger of BM&FBOVESPA S.A. Securities, Commodities and Futures Exchange with Cetip S.A. – Mercados Organizados in March 2017.

6 ABVCAP and KPMG, 'Consolidação de Dados: Indústria de Private Equity e Venture Capital no Brasil: 2011–2012–2013–2014–2015–2016–2017'.

7 These monetary values have been converted from Brazilian reais to US dollars at the exchange rate for 31 December 2018, as published by the Brazilian Central Bank.

8 Percentages calculated on the amounts in Brazilian reais.

9 See footnote 6.

10 See footnote 6.

11 CVM Instruction No. 558/15, in force since 4 January 2016, regulates activities related to securities portfolio administration.

12 Ranking of investment fund managers, available at www.anbima.com.br.

13 Information from an ABVCAP report in partnership with Insper.

14 CVM Instruction No. 578, mentioned below.

15 Namely they may not issue founders' shares or have any similar securities outstanding; they must call for a unified term of one year for all directors; they must disclose the terms of contracts with related parties, shareholders' agreements and stock options and other similar programmes; they must pledge to resolve corporate disputes by arbitration; in the event of going public, they must give an undertaking to the fund to adhere to a trading segment of an exchange or organised over-the-counter market that requires enhanced corporate governance, in accordance with the preceding items; and their annual financial statements must be audited by an independent auditor registered with the CVM.

16 Resolution No. 4,373 of 29 September 2014, issued by the National Monetary Council.

17 Brazilian law defines more than one concept of a favourable tax jurisdiction. However, the concept that matters for this particular analysis relates to foreign investments in the Brazilian financial and capital markets pursuant to CMN Resolution No. 4,373/14. Accordingly, the applicable concept of a favourable tax jurisdiction relates to countries that do not tax income or that tax income at a rate lower than 20 per cent, or do not provide information regarding the equity partners of legal entities, their owners or the beneficial owners of income paid to non-residents. The threshold of a standard tax rate of 20 per cent used to identify privileged tax regimes is reduced to 17 per cent if the country follows the international standards of tax transparency (Ordinance MF No. 488/14), as established by the Brazilian Federal Revenue (RFB).

The Brazilian tax authorities have listed some jurisdictions as favourable tax jurisdictions. Historically the tax authorities have viewed this list as being a numerus clausus list, namely any jurisdiction not appearing on the list will not be deemed a favourable tax jurisdiction. In 2017, Costa Rica, Madeira and Singapore were removed from the list.

18 Section 3 of Law No. 11,312/2006.

19 The FIP may also have Brazilian resident investors, but they will not benefit from this tax incentive.

20 The 40 per cent ceiling applies to the following parties related to individual FIP investors: (1) relatives up to the second degree, (2) companies controlled by the investor or by any of the investor's relatives up to the second degree, and (3) partners or managers of companies controlled by the investor or the investor's relatives up to the second degree. Where the investor is a legal entity, the ceiling applies to any entities that are the investor's controller, or are controlled by or affiliated to the investor.

21 Section 97 of Law No. 12,973/2014.

22 If the fund regulations restrict its quota holders to non-resident individuals only, the fund is also allowed to invest in assets whose gains will be exempt from individual income tax under Section 3 of Law No. 11,033/2004 (e.g., certificates of real estate receivables, and real estate investment funds).

23 This obligation was also imposed on Brazilian entities by COCAD Declaratory Executive Act No. 9, of 23 October 2017, issued by the RFB.

24 Pursuant to Article 8, Section 2 of RFB Rule No. 1,634, as of 6 May 2016 a significant control or influence is presumed whenever the individual (1) holds, directly or indirectly, more than 25 per cent of the entity's corporate capital, or (2) holds, directly or indirectly, the power to control the entity's corporate decisions and to appoint the majority of its managers.

25 CVM Instruction No. 558/15, in force since 4 January 2016, regulates activities related to securities portfolio administration.

26 ABVCAP–ANBIMA's Regulation and Best Practices Code: Private Equity and Venture Capital Funds.

28 Although CVM Instruction No. 578 was enacted in August 2016, the FIPs had until August 2017 to adapt the new rules.

29 Previously, according to CVM Instruction No. 391, FIPs could only invest in corporations and not in limited liability companies. Additionally, FIPs could not invest in non-convertible debentures, only in convertible ones.

30 CVM Instruction No. 579 applies to accounting periods initiated on or after 1 January 2017.

31 Article 254-A of the Law of Corporations determines that the buyer must launch a public tender offer to acquire the voting shares owned by the other shareholders at a price per share of at least 80 per cent of that paid for the shares in the controlling block. In the case of companies listed in the Novo Mercado and Level 2 trading segments of BM&FBOVESPA (the top two enhanced governance segments), the public offer must target all the remaining shares, for the same price paid to those of the controlling block, to assure equal treatment between minority and controlling shareholders.