Summary
This article examines the balance between private autonomy, protection of minority shareholders and protection of public interests in Brazilian corporate governance. It is based on the premise that relevant corporate conflicts, especially those related to dilution, access to information and intervention in the administration, are rarely resolved efficiently only by ex post judicial remedies. It is argued that the effective protection of minority investment depends predominantly on transactional architecture: informational discipline, governance design, structuring of consent and exit mechanisms, in addition to adequate risk allocation in contractual instruments. In parallel, the judicial intervention in the administration is analyzed in the light of empirical evidence from judgments of the Court of Justice of São Paulo, highlighting the exceptionality of the measure, the prevalence of the principle of minimum intervention and the stabilizing role of the provisional administrator. Finally, judicial intervention (endogenous) is contrasted with regulatory intervention (exogenous) in sensitive sectors, discussing the impacts of state action on shareholder autonomy and transactional predictability.
Keywords: minority shareholders; dilution; right to information; corporate governance; judicial intervention; regulatory intervention; arbitration; due diligence.
1. Introduction
The contemporary debate on corporate governance is not limited to the classic dichotomy “private autonomy versus minority tutelage”. In structures of concentrated control, the tension takes on more complex contours: the protection of minority investment depends, to a large extent, on the capacity of the corporate arrangement to produce: (i) decision-making predictability, (ii) informational symmetry, and (iii) credible exit and liquidity mechanisms. When these elements fail, conflicts tend to escalate to three fronts: (a) disputes over dilution and reorganizations; (b) disputes over access to information; and (c) requests for intervention in the administration, either by judicial means (internal conflict) or by regulatory means (public/systemic interest).
The central hypothesis of this article is that, in Brazil, the effective nucleus of protection of the minority shareholder is predominantly transactional, and not jurisdictional. This is because: (i) in matters of dilution, the jurisdiction usually favors parameters of procedural regularity and identification of abuse/conflict, avoiding replacing the market with judicial repricing; (ii) in terms of information, the practical solution stems from calibration by proportionality and safeguards (instead of “all or nothing”); and (iii) in terms of intervention in the administration, exceptionality and minimal intervention prevail, with preference for provisional and limited measures.
2. Protection of minority shareholders against dilution: the centrality of transactional planning
2.1. Lawful dilution and abuse of power: from formalism to substance control
Dilution, as an economic-legal result of a capital increase, reorganization or subsequent issuance, is not, in itself, illegal. Conflict arises when formally valid instruments are used as a means of undue transfer of power or value, either by strategically priced and timed “capital calls”, or by reorganizations that economically neutralize minorities, or by deliberations taken under conflict. The discussion, therefore, shifts from the level of form to the level of substance: the question is not “whether it can be diluted”, but “whether the dilution has been used in an abusive manner” and in violation of duties of loyalty and good faith.
At this point, it is decisive to recognize that the minority shareholder’s protection does not begin with the “correct clause”, but with processes and choices that precede the final contract: (i) the way in which the transaction is negotiated; (ii) the way in which the information is collected and shared; (iii) how price and risk are parameterized; and (iv) which consent and exit triggers are contracted.
2.1.1. Economic and governance dilution: concept and recurrent abuse patterns
Dilution manifests itself in two distinct, yet structurally interrelated, dimensions.
First, economic dilution, which occurs through the reduction of a shareholder’s proportional ownership and corresponding economic exposure, directly affecting expected returns, exit value and downside protection.
Second, governance dilution, which operates through the erosion of minority influence over corporate decision-making. This form of dilution may arise from the loss or weakening of veto rights, board representation, quorum thresholds, consent rights, or informational leverage. Importantly, governance dilution often precedes or amplifies economic dilution, as control over process and information determines how value is ultimately allocated.
While both dimensions frequently coexist, governance dilution is particularly insidious because it may occur without any immediate change in shareholding percentages, yet fundamentally alters the balance of power within the company.
From a transactional perspective, experience reveals a set of recurring dilution abuse scenarios, typically implemented through formally valid corporate acts, but structured in a manner that disproportionately transfers value or control to the majority shareholder.
Common patterns include, in particular:
(i) Capital increases at artificially low valuations: Controlling shareholders often retain control over the timing, valuation methodology and issuance mechanics of capital increases. Although minority shareholders may formally retain pre-emption rights, the issuance is structured at a distorted or depressed valuation, making participation economically irrational or financially unfeasible. The result is a dilution that is procedurally compliant but substantively coercive.
(ii) Debt-to-equity conversions controlled by the majority: Shareholder loans are frequently injected by controlling shareholders under opaque or loosely documented terms and subsequently converted into equity at preferential ratios. These conversions are often carved out from pre-emption rights through broad or ambiguous exceptions, enabling a silent reallocation of ownership and control.
(iii) Distress-driven dilution: Capital calls triggered during liquidity crises represent another classic dilution vector. In such scenarios, minority shareholders typically face severe informational asymmetry and capital constraints. Although the process may comply with statutory and contractual formalities, the economic reality is one of pressure and compulsion, rather than genuine consent.
(iv) Selective or related-party issuances: Equity may be issued to entities affiliated with the controlling shareholder, including investment vehicles or related parties, under terms that formally satisfy legal requirements but effectively dilute minorities while preserving the controller’s relative position.
These patterns underscore a central point: dilution disputes rarely hinge on the legality of the corporate act itself, but rather on whether governance mechanisms were used in a manner consistent with duties of loyalty, good faith and proportionality.
2.2. The safeguards “ecosystem”: contract, status and instruments of the operation
Effective protection arises from a three-layer architecture, which must be consistent with each other: (a) partner/shareholder agreement; (b) articles of incorporation/bylaws; and (c) M&A instruments (NDA, LOI/MOU, due diligence, SPA and annexes). The transactional experience shows that an isolated safeguard is fragile, as it can be circumvented by corporate form, by internal governance or by informational asymmetry.
In this ecosystem, the following stand out:
(i) Pre-emption rights: The preemption right is the basal protection against involuntary dilution. Its economic meaning is to allow the minority shareholder to maintain, if he wants and can, his proportional participation. However, the right is only effective if it is “exercisable”: adequate deadlines, disclosure of terms, assignment rules, and prohibition of structures that transform the right into a formality.
(ii) Qualified quorums and vetoes (consent rights): Protection against structural dilution often involves imposing reinforced quorums for capital increases, issuance of share classes, reorganizations, changes in economic rights and transactions with related parties. The objective is to prevent decisions that redesign the “economic contract” from being imposed unilaterally.
(iii) Anti-dilution in investment structures: In operations with successive rounds, anti-dilution clauses mitigate the economic loss due to down rounds, especially when there is a risk of issuance strategically designed to reallocate value.
(iv) Appraisal-type remedies: When dilution becomes unavoidable, the relevant hedge is the exit. “Appraisal-type remedy” designates, in comparative terms, the right of the dissident to go out in extraordinary events and receive a fair value in money, determined by objective criteria (agreement, report, agreed procedure). The function is to prevent the minority shareholder from remaining invested under fundamentally changed conditions without adequate compensation.
(v) “Economic dilution” by price allocation: In addition to the classic corporate dilution mechanisms, the practice reveals a recurring phenomenon of dilution by business economics (“dilution-by-economics“), associated with the way the price is structured in M&A transactions. It is relatively common for the total value of the transaction to be divided into two components: (i) the price paid for the shares/quotas, and (ii) a separate payment linked to non-compete obligations assumed by the controlling selling shareholder.
This model may have a material impact on minority shareholders in controlling transactions. The non-compete payment, as a rule, is directed only to the selling controlling shareholder, while minority shareholders receive exclusively the value attributed to their shares/quotas. When the portion allocated to the price of the shares is artificially reduced and a relevant part of the value is shifted to the non-compete portion, there is a reduction in the effective value per share/quota due to minority shareholders, even if the overall amount announced remains unchanged. Due to its often discretionary nature, the allocation between these two components can be manipulated as a mechanism for transferring value, distancing itself from what would be the appropriate expression of the market value of the holdings.
A direct transactional safeguard consists of requiring an independent valuation of the shares/quotas to establish a fair market value baseline and, from there, contractually disciplining the price allocation among the components of the transaction. Clauses that impose independent valuation and, when appropriate, rules that treat relevant lateral payments (such as non-competition) in an integrated manner with the total economic value of the transaction for the purpose of protecting the minority shareholder, reduce the space for economic engineering aimed at indirectly emptying the proportional remuneration of minorities. In summary: even when formal rights of protection exist, fair value can be compromised if a substantial portion of the price is diverted from the price of the shares through inflated side payments.
(vi) Due diligence + risk allocation (good faith and price): Due diligence, at the transactional level, is not just “checking”: it is the mechanism that converts uncertainty into a risk matrix. In terms of contractual rationality, identified and priced risks tend to migrate to the buyer; Undisclosed/identified/priced risks shall remain with the seller and be covered by warranties and indemnity. This logic is reinforced by objective good faith and by duties of information and diligence in the pre-contractual phase.
(vii) Informational parity and “decision package“: The protection of minority shareholders, especially in relevant transactions and within the scope of publicly-held companies, presupposes an element that is often underestimated: informational parity. In functional terms, the minority shareholder must be able to evaluate the transaction based on a set of information comparable to that used by the controlling shareholder and the managers to decide on the convenience of the business. This implies, in practice, access to the core information that underpinned the decision-making (the so-called “decision package“) including, to the extent necessary, the essential due diligence materials and full disclosure of the terms and structure of the relevant transactional documents.
This parity is not to be confused with unrestricted publicity of operational secrets to the market. It is about ensuring that the minority shareholder receives sufficient, consistent and timely information to effectively exercise its governance rights: approve or disapprove the transaction, formulate informed objections, negotiate conditions, and, when applicable, trigger exit mechanisms and evaluation criteria (such as preemptive rights, vetoes and withdrawal/evaluation remedies). Without this informational basis, legal protection tends to become merely formal, as the shareholder is placed in front of structuring decisions “in the dark”, without effective capacity to measure risk, fairness and available alternatives.
The practical consequence is straightforward: many dilution disputes are avoided before they arise when the due diligence process and disclosure regime precisely delimit what is known, what is unknown, what has been priced and what must remain collateralized. Due diligence, in this sense, operates as a structuring element of transactional governance and as a condition for minority shareholders to be able to exercise exit rights and economic protection in a concrete way.
Such access is usually operationalized by safeguard mechanisms, such as confidentiality agreements, auditable data rooms, scope limitation and, when necessary, clean teams that preserve trade secrets without sacrificing the indispensable informational core.
In this context, reserved matters and veto rights over capital decisions often emerge as the most effective anti-dilution tools when properly calibrated. Typical reserved matters include, among others:
(i) capital increases exceeding defined thresholds;
(ii) issuances below fair market value;
(iii) waiver or limitation of pre-emption rights;
(iv) conversion of debt into equity; and
(v) issuance of hybrid or equity-linked instruments.
These mechanisms, however, must be proportionate. Excessive or poorly calibrated veto rights tend to increase deadlock risk, impair operational flexibility and, paradoxically, depress exit valuations. Effective minority protection does not lie in absolute control, but in governance rights that are aligned with the investor’s economic exposure and risk allocation.
2.3. Fairness and judicial review: practical limits of ex post repricing
In dilution litigation, the Brazilian jurisdiction tends, pragmatically, to privilege: (i) procedural regularity; (ii) presence of conflict; and (iii) evidence of abuse, without committing, as a rule, to a full repricing of the economic merit of the issue. The result is predictable: if the party wants to impose “fairness discipline“, it needs to hire this discipline through independent valuation, reinforced disclosure, qualified quorums and internal approval rites.
3. Right to information and transparency: oversight, asymmetry and sensitive interests
3.1. “Access with safeguards”: scope, proportionality and protection mechanisms
The right to information is the oxygen of minority protection: without information, preemptive rights, vetoes and exits become abstractions. Conflict arises when transparency collides with trade secrets, sensitive data, competitive strategy, or stakeholder interests. Contemporary practice responds with a functional model: access with safeguards, not “access or refusal”.
This model involves: (i) delimiting a minimum informational core (financial, material contracts, transactions with related parties, extraordinary decision documents); and (ii) protecting the sensitive by NDAs, auditable data rooms, logs, phased disclosure, redactions and clean teams.
3.2. Competition, antitrust and competitively sensitive information
When the minority shareholder is a competitor, corporate information becomes a point of friction with competition law. The proper solution is rarely total negative; The way forward is to calibrate access to prevent competitively sensitive information from being used as an instrument of market conduct, while preserving the minimum necessary for inspection and the exercise of corporate rights.
4. Shareholder autonomy and public perimeter: regulatory intervention and judicial intervention
4.1. Regulatory intervention and public interest: the Banco Master case as a paradigm of transactional risk
In regulated sectors, private autonomy is conditioned by a perimeter of public interest. Regulatory intervention can neutralize corporate decisions in the name of systemic stability, security, continuity of service, prudence or sectoral policy. The Banco Master case clearly illustrates the phenomenon: the liquidation decreed by the monetary authority, on prudential and systemic grounds, immediately displaces shareholders and managers from governance, transferring the decision-making center to the regulator. From the point of view of governance, measures of this type produce an instantaneous effect: they displace the decision-making center, affect expectations of continuity and change, in practice, the economic basis of ongoing negotiations. This immediate effect is usually only the first chapter. What matters most, from a transactional perspective, is the post-act: the intervention can be submitted to reviews and controversies in judicial and control instances, prolonging uncertainty and putting pressure on the contractual design of risk allocation.
4.2. Judicial intervention in the administration: empirical evidence, minimal intervention and provisional administrator
Unlike regulatory intervention, judicial intervention in the administration is endogenous and arises from an internal crisis (“political crisis” corporate). In an empirical study on rulings of the Court of Appeals of São Paulo, Marcelo Guedes Nunes, in his article “Injunction Judicial Intervention in the Administration of Companies”, identifies relevant patterns of approval and rejection of injunctions for intervention in corporate management, notably in scenarios of internal crisis, having observed: (i) predominance of litigation in limited liability companies (83.33%); (ii) higher approval rate for appointment of provisional administrator (approx. 75% when required); (iii) high rejection in requests for removal of directors (approx. 63.46%), despite being frequent.
Jurisprudence reveals a pattern: the Brazilian Judiciary operates under the principle of minimum intervention and acts, primarily, out of the factual need to preserve the company, recognizing institutional limitations: absence of managerial training, informational asymmetry and lack of precise legal parameters to calibrate interference. When appointed, the provisional administrator tends to have limited powers, exercising functions of inspection/verification, preservation of ordinary acts and temporary stabilization of the impasse, often as “faithful of the balance” until internal recomposition.
5. Conclusion
The protection of minority shareholders in Brazil is more effective when conceived as a governance architecture and informational discipline than as an expectation of late judicial correction. Regulatory intervention, when triggered, can immediately suspend private autonomy in the name of public and systemic interests; Judicial intervention, in turn, tends to be exceptional and minimalist, aimed at keeping the company functional until the partners themselves resolve the conflict.
In this scenario, good corporate and transactional practice converges on the same point: the construction of an ecosystem of safeguards that includes (i) exercisable rights of first refusal and information, (ii) vetoes and qualified quorums for structuring decisions, (iii) exit mechanisms at fair value, (iv) explicit allocation of risks via due diligence, statements, guarantees, and indemnity, and (v) quick and technical enforcement mechanisms (such as arbitration) when the dispute arises. Societal stability, ultimately, depends less on “external aid” and more on governance prepared for predictable conflicts.
