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The establishment of holding companies has become increasingly common as a strategy for asset, succession, and business organization. However, despite their apparent legal shielding, holdings may be subject to piercing of the corporate veil, particularly in cases involving abuse of corporate form, deviation of purpose, or asset commingling. In this article, we address who is held liable in practice if a holding company is disregarded, the legal and case law foundations for such a measure, and what precautions business owners should take to protect family or corporate assets involved. 1. What Is a Holding Company and Why It Is Used A holding company is a legal entity whose main purpose is to participate in the share capital of other companies. It may be pure  (when it only manages equity interests) or mixed (when it also performs operational activities). In Brazil, holdings are frequently used for: ·         Succession planning and reducing family disputes; ·         Structuring business groups with greater tax efficiency; ·         Asset protection, segregating personal and business assets; ·         Accounting and financial organization of family or corporate wealth. 2. When Can a Holding Company Be Pierced? Piercing of the corporate veil, provided for in Article 50 of the Brazilian Civil Code , applies when the legal entity is used for: ·         Fraud or abuse of rights; ·         Asset commingling between shareholders and the company; ·         Deviation of purpose (using the company for purposes other than those declared); ·         Improper shielding of assets with the intent to defraud creditors. Brazilian case law also recognizes reverse piercing  — when the holding’s assets are reached to satisfy shareholders’ debts — or expansive piercing , involving companies within the same family or economic group. 3. Who Can Be Held Liable if the Holding Is Pierced? When the court sets aside the holding’s autonomy, the assets of its shareholders, controllers, or managers may be directly targeted. The main scenarios are: ➤  Shareholders of the holding (individuals or entities): If deviation of purpose or asset commingling is proven, the personal assets of shareholders may be seized to settle debts contracted by the holding itself or by companies it controls. ➤  De facto or de jure managers: If intentional misconduct, fraud, or mismanagement is established, managers may be held personally liable, including under joint and several liability. ➤  Other companies within the group (cross-liability): In cases of joint operations or de facto economic groups, the assets of affiliated or family-owned companies may also be reached. Important:  Piercing the corporate veil does not extinguish the legal entity of the holding, but rather temporarily disregards its patrimonial autonomy to reach the assets of its members. 4. Current Case Law and Court Criteria Courts apply piercing of the corporate veil based on objective and factual criteria. The mere existence of a holding is not abusive per se, but if used as a tool to defraud creditors or conceal assets, it may be judicially disregarded. ·         “The creation of a family holding, by itself, does not constitute fraud; it is essential to demonstrate deviation of purpose or asset commingling for the application of Article 50 of the Civil Code.” (STJ – REsp 1.775.269/SP) ·         “Once asset commingling and joint management are verified, piercing of the corporate veil of the holding is permitted, with liability extending to shareholders and other companies of the group.” (TJSP – Interlocutory Appeal 2153451-71.2020.8.26.0000) 5. How to Prevent Piercing: Recommended Practices To reduce the risk of personal or family liability arising from the piercing of a holding company, it is essential to adopt sound governance and control practices: ·         Maintain clear segregation between the assets of the holding and those of its shareholders; ·         Keep regular and individualized accounting, avoiding commingling of funds; ·         Define managers’ powers and responsibilities formally; ·         Comply with the company’s corporate purpose and declared objectives; ·         Avoid using the holding to conceal assets or defraud obligations; ·         Carry out corporate acts regularly, with updated records; ·         Rely on ongoing legal and accounting advice for auditing and compliance. 6. Final Considerations A holding company is a lawful, effective, and recommended structure for asset and succession planning, provided it is used in good faith, with transparency and technical rigor. However, when misused, it may be subject to piercing of the corporate veil, exposing shareholders, managers, and group companies to direct liability for debts. Business owners must understand that form does not protect unlawful content: no corporate structure will withstand abuse. Therefore, preventive action is always the safest path to safeguard assets built through effort, while respecting applicable legal and contractual limits.

Many entrepreneurs, partners, or even consultants make decisions on behalf of a company without being formally appointed as directors in the articles of association or before the commercial registry. This informal performance, often seen as natural in the daily life of business entities, can create serious legal risks, including personal liability for the company’s debts and unlawful acts. In this article, we clarify what characterizes a so-called de facto director, the legal implications of this role, and the key precautions that should be taken to avoid unpleasant surprises in tax enforcement, labor claims, or lawsuits seeking the piercing of the corporate veil. 1. What Is a De Facto  Director? A de facto director is someone who, although not formally appointed as a company director, performs, on a continuous or significant basis, acts typical of corporate management. This may be a partner, a third party, a family member, or even an employee who makes strategic decisions, authorizes payments, signs contracts, or represents the company before third parties. This role differs from that of a de jure  director, who is the person expressly designated in the company’s articles of association or bylaws, vested with specific powers and responsibilities duly registered with the competent authorities (Commercial Registry, Federal Revenue, etc.). 2. What Are the Risks for a De Facto  Director? Acting as a de facto director may give rise to direct personal and financial liability, particularly in the following contexts: ·         Tax enforcement:  the de facto director may be held liable for the company’s tax debts, under Article 135, III, of the Brazilian National Tax Code, which provides for personal liability of those who act with abuse of authority, in violation of the law, or of the articles of association. ·         Labor claims:  labor courts admit personal liability of the de facto  director, especially when labor laws are violated, such as lack of employee registration, non-payment of severance entitlements, or misuse of job roles. ·         Piercing the corporate veil:  a de facto director may be included as a defendant in actions seeking to redirect enforcement to the personal assets of those who engaged in acts of abuse of legal personality, deviation of purpose, or asset commingling. ·         Liability for unlawful acts:  contracts signed or decisions made by the de facto  director on behalf of the company may be challenged in court, and may also result in civil and even criminal liability, depending on the case. 3. What Does Case Law Say About the Issue? Brazilian courts have frequently recognized the existence of de facto  directors, based on documentary and testimonial evidence showing the actual exercise of management duties, even in the absence of formal registration. Relevant rulings include: ·         “Liability for tax debts may be extended to the de facto  director, provided that acts of management in violation of the law or company bylaws are proven.” (STJ – AgRg in REsp 1.150.464/SP) ·         “Both the de jure and the de facto director are jointly liable when it is established that both participated in conducting the company’s business, with decision-making powers.” (TRT-2 – RO 1000121-74.2020.5.02.0010) 4. How to Know if You Are Acting as a De Facto  Director You may be considered a de facto  director if you: ·         Authorize or make significant company payments; ·         Represent the company in meetings with suppliers, banks, or government agencies; ·         Participate in strategic decision-making; ·         Decide on hiring and dismissing employees; ·         Sign contracts, agreements, or corporate documents, even informally; ·         Establish internal policies, business operations, or management acts. Even if these actions are performed in good faith or with the tacit approval of other partners, liability may arise if damages, irregularities, or legal omissions occur. 5. How to Protect Yourself: Practical Guidelines To avoid being characterized as a de facto  director and the corresponding risks, it is advisable to: ·         Avoid performing management functions without formal appointment in the articles of association or recorded minutes; ·         If actively involved in management, request inclusion as a de jure director, with clearly defined powers and duties; ·         Maintain supporting documentation for every significant decision, with approval from formally appointed directors; ·         Limit involvement to that of an investor or advisor if not engaged in the company’s day-to-day operations; ·         Formalize consultancy or advisory agreements without assuming direct decision-making authority. 6. Final Considerations Acting as a de facto director may seem harmless at first glance but represents one of the greatest legal vulnerabilities for entrepreneurs and partners. In times of crisis, litigation, or enforcement, lack of formality can prove costly — including personal asset seizure, debt redirection, or judicial freezes. Prevention and clear documentation are the best tools to safeguard rights and limit liabilities. Ongoing legal counsel is also essential to structure company management safely, particularly in economic groups, holding structures, or family-owned businesses.

In an increasingly dynamic and interconnected business environment, it is common for companies to operate in coordination, sharing infrastructure, human resources, and commercial goals. However, this proximity can bring significant legal risks, particularly when the so-called economic group  is established. In this article, we explain what characterizes an economic group and the practical effects of cross-liability between companies. Understanding these concepts is essential for entrepreneurs, managers, and investors who wish to preserve corporate asset autonomy and avoid the improper extension of debts across formally distinct companies. 1. What Is an Economic Group? An economic group can be formed formally—when structured through direct and declared corporate control, as in holdings and subsidiaries—or factually, when there is joint activity, asset commingling, shared management, or converging economic interests. Labor Law, for example, expressly recognizes the concept of a de facto economic group under Article 2, §2, of the Brazilian CLT (Labor Code). In Civil Law, the analysis is conducted based on the principles of good faith, the social function of the company, and asset autonomy, as established in Articles 50 and 421 of the Civil Code. 2. Cross-Liability: Concept and Consequences Cross-liability arises when one company is held accountable for obligations undertaken by another company within the same group, even if it did not directly participate in the legal relationship that gave rise to the debt. Such liability may result from: ·         Asset commingling between companies; ·         Common management or control; ·         Mutual economic interest in the business operation; ·         Lack of accounting and financial segregation. In general, liability among companies can be: ·         Joint (solidary):  all companies in the group are collectively responsible for liabilities; ·         Subsidiary:  liability is triggered only if the principal debtor fails to meet its obligations. 3. When Is the Economic Group Recognized by the Courts? Courts analyze concrete facts, not merely the formal structure of companies. Elements such as shared employees, use of the same headquarters, issuance of invoices by different companies for the same service, or cross-payment of expenses are strong indicators of an economic group. Relevant case law: ·         “The configuration of an economic group does not require hierarchical subordination between companies, but rather the existence of coordination and unity of interests.” (TST – RR 11235-42.2017.5.03.0108) ·         “Joint liability may be recognized among companies with shared partners and asset commingling, even in the absence of a direct contractual relationship.” (STJ – REsp 1.097.735/SP) 4. Risks for Entrepreneurs and Practical Impacts The main risk lies in the extension of one company’s liabilities to others within the group, jeopardizing the assets of otherwise solvent entities. Consequences may include the disregard of legal personality, forced execution of third-party assets, or the substantive consolidation of bankruptcy or judicial reorganization. Other effects: ·         Loss of legal certainty among affiliated companies; ·         Impacts on tax and fiscal accounting; ·         Uncertainty in credit operations, mergers, or acquisitions. 5. How to Prevent Cross-Liability: Best Practices To preserve corporate autonomy and avoid judicial recognition of an economic group or cross-liability, it is recommended to: ·         Maintain strict accounting segregation among companies; ·         Ensure financial and banking independence (separate accounts); ·         Formalize contracts between group companies, including for asset or service transfers; ·         Avoid centralized management or overlapping executive roles; ·         Keep formal and documented records of all intercompany transactions; ·         Maintain distinct corporate purposes and individualized business activities. 6. Final Considerations Joint business operations can be strategically advantageous from a commercial perspective, but they must be supported by a solid legal and accounting framework. The recognition of economic groups and cross-liability by Brazilian case law serves to curb abuses and safeguard market good faith. Therefore, entrepreneurs should seek preventive legal guidance to ensure that business expansion and corporate diversification do not compromise the financial and asset stability of the entire business ecosystem.

In an increasingly dynamic and interconnected business environment, it is common for companies to operate in coordination, sharing infrastructure, human resources, and commercial goals. However, this proximity can bring significant legal risks, particularly when the so-called economic group  is established. In this article, we explain what characterizes an economic group and the practical effects of cross-liability between companies. Understanding these concepts is essential for entrepreneurs, managers, and investors who wish to preserve corporate asset autonomy and avoid the improper extension of debts across formally distinct companies. 1. What Is an Economic Group? An economic group can be formed formally—when structured through direct and declared corporate control, as in holdings and subsidiaries—or factually, when there is joint activity, asset commingling, shared management, or converging economic interests. Labor Law, for example, expressly recognizes the concept of a de facto economic group under Article 2, §2, of the Brazilian CLT (Labor Code). In Civil Law, the analysis is conducted based on the principles of good faith, the social function of the company, and asset autonomy, as established in Articles 50 and 421 of the Civil Code. 2. Cross-Liability: Concept and Consequences Cross-liability arises when one company is held accountable for obligations undertaken by another company within the same group, even if it did not directly participate in the legal relationship that gave rise to the debt. Such liability may result from: ·         Asset commingling between companies; ·         Common management or control; ·         Mutual economic interest in the business operation; ·         Lack of accounting and financial segregation. In general, liability among companies can be: ·         Joint (solidary):  all companies in the group are collectively responsible for liabilities; ·         Subsidiary:  liability is triggered only if the principal debtor fails to meet its obligations. 3. When Is the Economic Group Recognized by the Courts? Courts analyze concrete facts, not merely the formal structure of companies. Elements such as shared employees, use of the same headquarters, issuance of invoices by different companies for the same service, or cross-payment of expenses are strong indicators of an economic group. Relevant case law: ·         “The configuration of an economic group does not require hierarchical subordination between companies, but rather the existence of coordination and unity of interests.” (TST – RR 11235-42.2017.5.03.0108) ·         “Joint liability may be recognized among companies with shared partners and asset commingling, even in the absence of a direct contractual relationship.” (STJ – REsp 1.097.735/SP) 4. Risks for Entrepreneurs and Practical Impacts The main risk lies in the extension of one company’s liabilities to others within the group, jeopardizing the assets of otherwise solvent entities. Consequences may include the disregard of legal personality, forced execution of third-party assets, or the substantive consolidation of bankruptcy or judicial reorganization. Other effects: ·         Loss of legal certainty among affiliated companies; ·         Impacts on tax and fiscal accounting; ·         Uncertainty in credit operations, mergers, or acquisitions. 5. How to Prevent Cross-Liability: Best Practices To preserve corporate autonomy and avoid judicial recognition of an economic group or cross-liability, it is recommended to: ·         Maintain strict accounting segregation among companies; ·         Ensure financial and banking independence (separate accounts); ·         Formalize contracts between group companies, including for asset or service transfers; ·         Avoid centralized management or overlapping executive roles; ·         Keep formal and documented records of all intercompany transactions; ·         Maintain distinct corporate purposes and individualized business activities. 6. Final Considerations Joint business operations can be strategically advantageous from a commercial perspective, but they must be supported by a solid legal and accounting framework. The recognition of economic groups and cross-liability by Brazilian case law serves to curb abuses and safeguard market good faith. Therefore, entrepreneurs should seek preventive legal guidance to ensure that business expansion and corporate diversification do not compromise the financial and asset stability of the entire business ecosystem.

Asset protection is a preventive measure adopted by entrepreneurs, families, and investors with the goal of safeguarding their assets against future risks, such as judicial enforcement, corporate disputes, financial crises, or family conflicts. Unlike illicit practices or attempts to conceal assets, legitimate protection must be structured using legal instruments, in compliance with the limits established by civil, corporate, and tax legislation, as well as consolidated case law on the subject. 1. What Is Lawful Asset Protection Lawful asset protection refers to a set of legal measures aimed at organizing and segregating assets to ensure preservation, continuity of business activities, family security, and succession planning.These measures are only valid when based on good faith, properly documented, and not intended to defraud creditors, frustrate enforcement proceedings, or simulate legal transactions. 2. Legal Tools for Asset Protection a) Asset and Family Holding Company Creating a holding company is one of the main strategies used for the protection and management of family or business assets. ·         It allows for the centralization of ownership of real estate, equity interests, and financial investments within a legal entity, separating them from the partners’ personal assets; ·         It facilitates succession planning, professionalizes asset management, and reduces probate costs; ·         It can serve as a mechanism for family income control and distribution. However, its use requires proper accounting practices, clear definition of roles, and respect for the legal personality of the entity. Situations of asset commingling, misuse of purpose, or simulation may lead to judicial disregard of the corporate entity. b) Formal Separation of Personal and Business Assets Failure to clearly distinguish between personal and business spheres can result in the partners being held personally liable for company debts. Adopting practices such as: ·         formal profit distribution, ·         partner remuneration through contract or payroll, ·         adequate capitalization of the company, ·         and regular bookkeeping, is essential to avoid personal liability and to preserve the partners’ assets in case of business insolvency. c) Donations With Restrictive Clauses Anticipating succession through donations containing clauses of inalienability, unseizability, and non-communicability can serve as a legitimate mechanism for asset protection and organization, provided legal limits are observed. These clauses: ·         do not exclude the forced share of legal heirs; ·         and are allowed to protect the asset against judicial liens, except in cases where the donor himself is a debtor. Their validity depends on express provisions and formal registration. d) Will and Succession Planning In addition to lifetime donations, a will allows the asset holder to organize the succession of the disposable portion of their estate, reducing conflicts among heirs and ensuring the continuity of businesses or family projects. 3. Legal Limits and Risks of Asset Protection The improper use of protection instruments may be invalidated by the courts, particularly in cases involving: ·         fraud against creditors (Art. 792, Brazilian Code of Civil Procedure), ·         simulation (Art. 167, Brazilian Civil Code), ·         or asset commingling and abuse of legal form (Art. 50, Brazilian Civil Code). Case law consistently requires concrete evidence of the intent to defraud creditors or misuse the corporate structure before authorizing the disregard of legal personality or the annulment of asset transactions. The Brazilian Economic Freedom Law (Law No. 13,874/2019) reinforced this requirement by stipulating that disregard of legal personality may only be decreed upon proof of misuse of purpose or asset commingling. 4. Joint Liability in Economic Groups and De Facto Management Even with valid asset structures, personal assets may still be reached when: ·         companies operate in a coordinated manner, with unified management and interests, creating joint liability within an economic group; ·         or when an individual, even without formal appointment, acts as a de facto manager and is held liable as if formally appointed, including for tax, labor, or civil debts. 5. Conclusion: Legal Certainty Requires Ongoing Planning Legitimate asset protection is not synonymous with concealment or artificial shielding. It is a structured and preventive legal plan designed to reconcile asset preservation with transparency, good faith, and the social function of business and property. The Ferreira Advocacia team works in the structuring of holding companies, corporate reorganizations, estate successions, and corporate liability matters, guiding entrepreneurs and families in building safe, customized, and effective solutions.

This article analyzes the concept and legal effects of de facto economic groups in Brazilian Corporate Law. While Brazilian law formally recognizes economic groups organized under the Corporation Law (Law No. 6,404/76), courts increasingly recognize informal (de facto) economic groups formed by companies that act in a coordinated manner, share a unity of interests, or exhibit asset commingling. This study explores the criteria for establishing such groups, the risks of joint and several liability, and the distinctions from the doctrine of piercing the corporate veil. In today’s corporate environment, it is common for companies, although formally independent, to operate jointly, in a coordinated and functionally integrated manner—especially when they belong to the same family, investment group, or operational structure. This reality gives rise to the concept of a de facto economic group , which, even without formal agreement or registration, can result in joint and several liability among the involved companies, based on principles of good faith, the social function of business, and the prohibition of misuse of legal personality. This article examines the elements that characterize a de facto group, how it differs from formal economic groups, and the legal risks arising from interconnected corporate activity without proper legal safeguards. 2. De Jure vs. De Facto Economic Groups 2.1 De Jure Economic Group Established under the Corporation Law (Law No. 6,404/76, Articles 265–277), and requires: The existence of a controlling company; A formal group agreement approved by shareholders and duly registered; Governance relationships between the parent and subsidiaries governed by specific legal standards. 2.2 De Facto Economic Group Arises from business practice, regardless of formalization. Its existence is determined by a factual analysis of the relationships between companies that: Share partners or managers; Operate from the same address or share infrastructure; Conduct business in the same market segment with overlapping clientele; Engage in resource transfers or cross-asset transactions. 3. Legal and Jurisprudential Basis Although not specifically regulated by statute, the liability of de facto economic groups is supported by: Art. 50 of the Civil Code – abuse of legal personality; Art. 265 of the Civil Code – solidarity is not presumed but may arise by law or implied agreement; Art. 2, §2 of the CLT  (by analogy) – companies with common interest and direction; Principles of good faith, the social function of the company, and fraud prevention. “The formation of an economic group does not depend on formalization, but on coordinated actions between companies with a common interest and operational integration.” (STJ, REsp 1.749.593/SP, Justice Luis Felipe Salomão, judgment on 11/17/2020)   4. Criteria for Recognizing a De Facto Economic Group Courts apply a set of factual indicators, including: Criterion Practical Example Common ownership or management Companies with the same controllers or executives Shared assets or asset confusion Property of one company registered under another Shared headquarters or operations Companies operating from the same location or sharing staff Frequent resource transfers Informal loans, shared bank accounts Coordinated market activity Artificial competition to divide clients or influence pricing Unified business strategy Integrated tax or corporate planning   “Operational coordination, control unity, and asset commingling are sufficient to hold companies liable as part of a de facto economic group.” (TJSP, Civil Appeal 1009233-81.2021.8.26.0100, judgment on 12/12/2023)   5. Legal Consequences of Recognizing a De Facto Economic Group 5.1 Joint and several liability Once recognized, companies may be held jointly liable for civil, labor, tax, or commercial obligations; Individual fault is not required—proof of coordinated conduct and common interest suffices. 5.2 Expansion of the defendant pool in enforcement actions Allows companies in the group to be directly included in enforcement proceedings, even if not listed in the original judgment. 5.3 Risk of cross piercing of the corporate veil A de facto economic group may justify piercing the corporate veil between formally distinct companies if there is misuse of purpose or asset commingling. 6. Difference Between De Facto Economic Group and Piercing the Corporate Veil De Facto Economic Group Piercing the Corporate Veil Holds interconnected companies liable Holds shareholders or managers personally liable Requires proof of coordinated business activity Requires proof of misuse of legal personality May result in joint liability among legal entities Extends liability from legal entity to individual No bad faith required; functional relationship suffices Requires evidence of abuse or fraud   7. Best Practices to Mitigate Risk of Cross-Liability Separate the operations of group companies both formally and materially; Maintain independent accounting records for each company; Formalize all intercompany transactions (including loans); Avoid shared offices, staff, or resources without contractual justification; Establish distinct governance structures with real decision-making autonomy; Disclose any control or ownership relationships where applicable. 8. Final Considerations The existence of a de facto economic group is not limited to formal agreements. Coordinated business activity, shared interests, and operational integration may give rise to joint and several liability and significant legal exposure, especially in tax, labor, and collection proceedings. Judicial recognition of such groups does not require bad faith—evidence of shared structure, management, or business purpose is sufficient. Therefore, business owners, managers, and legal advisors must act preventively to properly structure intercompany relationships, preserve each company’s patrimonial autonomy, and minimize the risk of cross-liability.

This article analyzes the legal, procedural, and substantive requirements for the expulsion of a partner for just cause in limited liability companies under Brazilian law. Provided for in the Civil Code, this mechanism is designed to safeguard the continuity and stability of the company when a partner commits a serious breach that renders their continued presence untenable. The analysis addresses the legal foundations, the procedural steps required, the grounds constituting just cause, the financial implications of the expulsion, and prevailing judicial interpretations. Limited liability companies are characterized by enduring and highly personal contractual relationships among partners, founded on mutual trust and cooperation in pursuing the company’s business activity. When this trust is broken due to conduct incompatible with the duties of loyalty and collaboration, Brazilian law allows for the expulsion of a partner for cause. Though exceptional, this remedy is essential to maintaining the stability and continuity of the company, avoiding the burden of coexisting with behaviors harmful to the company’s purpose. This article examines the legal and practical aspects of expulsion for just cause, its formal requirements, and the economic consequences for the excluded partner. 2. Legal Basis and Requirements for Expulsion for Just Cause 2.1 Civil Code Provision Art. 1,085 – Unless otherwise provided in the articles of association, a partner who commits a serious breach of duties or exposes the company to considerable risk of harm may be expelled by amending the articles of association, if the expulsion is approved by a majority of the other partners, excluding the vote of the accused partner, and provided the right to a defense is guaranteed. This constitutes a case of compulsory partial dissolution based on subjective and causal grounds, conditioned upon the occurrence of a serious breach and compliance with internal procedural due process. 3. Recognized Grounds for Just Cause The law does not provide an exhaustive list of just cause events, which are instead defined through case law. Commonly accepted grounds include: Breach of the duty of loyalty or acts of unfair competition; Misappropriation of company funds or assets; Repeated conduct inconsistent with the company’s objectives; Systematic noncompliance with contractual or legal obligations; Willful obstruction of the company’s regular operations. “Repeated conduct by a partner diverting clients to a competing company they own constitutes just cause for expulsion.” (TJSP, Civil Appeal 1004298-78.2020.8.26.0100, judgment on 10/24/2023) 4. Formal Requirements for the Expulsion Process Expulsion for just cause must follow a formal procedure to ensure due process and avoid nullity: 4.1 Express provision in the articles of association The articles may detail the procedure, including quorum and notice requirements. 4.2 Majority vote of partners The vote of the accused partner is excluded (Civil Code, Art. 1,085). 4.3 Guarantee of the right to a defense The accused partner must be given a reasonable period to respond and be allowed to present a defense at a partners’ meeting. 4.4 Registration of the expulsion The amended articles reflecting the expulsion must be filed with the Commercial Registry, along with any adjustments to the company’s capital. 5. Asset Consequences of Expulsion: Valuation of Interests The partner’s expulsion results in partial dissolution of the company and requires the valuation of their equity interest, in accordance with: The articles of association (e.g., book value, market value, or asset-based criteria); Art. 1,031 of the Civil Code (valuation reference date is the expulsion event); If there is disagreement, a judicial action for valuation may be filed, usually involving an accounting expert. “A partner expelled for just cause is entitled to receive the value of their equity interest based on the company’s financial position on the expulsion date, as determined by the articles of association.” (STJ, REsp 1.199.121/SP, Justice Luis Felipe Salomão, judgment on 09/10/2020) 6. Consequences of Expulsion and Limits on Retention of Assets The expelled partner loses their status as a partner but retains the right to receive their equity interest; The company cannot withhold payment solely on the basis of the expulsion; Any losses caused by the expelled partner may be claimed in court if not offset by express contractual provisions; Clauses that impose automatic forfeiture of the partner’s entire interest are deemed null and void for violating Art. 421-A of the Civil Code  and the social function of contracts. 7. Relevant Case Law “The expulsion of a partner requires clear evidence of serious misconduct and compliance with corporate due process, under penalty of nullity.” (TJMG, Civil Appeal 1.0000.20.131621-2/001, judgment on 05/18/2022)   “Valuation of interests must reflect the true value of the partner’s share, even in cases of expulsion for just cause.” (TJSP, Civil Appeal 1019876-45.2021.8.26.0100, judgment on 12/06/2023)   “A contractual clause establishing complete forfeiture of the partner’s equity as a penalty for just cause expulsion is abusive and void.” (STJ, REsp 1.729.554/SP, Justice Paulo de Tarso Sanseverino, judgment on 08/12/2021) 8. Best Practices for Expelling a Partner for Just Cause Include specific clauses in the articles of association defining the procedure; Formalize all steps (notifications, meeting minutes, registry filings); Allow sufficient time for defense and ensure due process; Decide by lawful quorum, excluding the accused partner’s vote; Value the equity interest per contractual or legal criteria. 9. Final Considerations The expulsion of a partner for just cause is a severe measure that demands solid evidence of serious misconduct, strict adherence to procedural requirements, and careful handling of the resulting financial implications. Its goal is to preserve the continuity and integrity of the company by removing partners whose conduct undermines the business purpose or corporate harmony. Preventive legal counsel is essential to ensure the validity of the process, uphold the right to a defense, and mitigate future disputes, particularly concerning the valuation and payment of the expelled partner’s equity interest.

This article analyzes the clawback clause  — also referred to as a reversion clause  — applied to the purchase and sale of equity interests, especially in investment agreements or corporate reorganization transactions. It is a contractual mechanism that allows for the restitution of amounts or assets transferred if certain future conditions are not fulfilled. The study explores its legal nature, validity under the Brazilian Civil Code, contractual limitations, modalities, and key legal risks, with support from legal doctrine and recent case law. The purchase and sale of corporate quotas often involve conditional or resolutory clauses , used to allocate risk between the parties based on the company’s post-transaction performance. Among these, the clawback clause stands out. This clause enables the seller or investor to recover part of the transferred equity or paid amount if the buyer or the company fails to meet pre-established targets — whether financial, strategic, or regulatory. However, its use requires legal caution, as it may be deemed null, abusive, or even fraudulent if not aligned with the principles of good faith , proportionality , and the social function of contracts . 2. Concept and Legal Nature of the Clawback Clause The clawback clause is an accessory contractual provision, legally characterized as: ·       A resolutory condition  (Articles 121 and 127 of the Civil Code), whereby the contract is undone if the agreed-upon event occurs; or ·         A conditional obligation  to partially return the price or equity, based on future non-performance. Its structure is grounded in private autonomy  (Article 421 of the Civil Code) and the freedom of the parties to modulate contractual effects based on the business risks undertaken. 3. Purpose and Common Use Cases Clawback clauses are used to: ·         Protect the seller when the purchase price is contingent upon future performance assumptions; ·         Ensure reversibility of the transaction where there is uncertainty about hidden liabilities; ·         Protect the investor if the financial statements misrepresent the company’s actual financial condition; ·         Correct post-sale distortions due to late disclosures, unexpected litigation, or loss of strategic contracts. 4. Common Modalities of Clawback Clauses Modality Characteristics Proportional price refund A portion of the purchase price is refunded if revenue or profit targets are not met. Equity reversion Equity interests are returned to the seller, fully or partially, upon breach. Automatic price adjustment The deal value is reassessed based on post-closing adjustments. Compensatory indemnification The buyer agrees to compensate for hidden liabilities or underperformance. 5. Legal Validity Requirements To be valid, the clawback clause must meet the following requirements: 1.       The future and uncertain event must be clearly defined (objective condition); 2.       A reasonable time frame must be set for verifying the condition; 3.       The clause must not result in unjust enrichment  or unilateral excessive burden ; 4.       The right to due process must be ensured in verifying the condition (e.g., right to accounting expertise or access to records); 5.       The clause must be duly recorded in the articles of association when involving equity in limited liability companies. 6. Case Law on Clawback Clauses " A contractual clause that provides for proportional refund of the purchase price of corporate quotas is valid when it is proven that the financial statements provided by the seller did not reflect the company’s actual condition. " (São Paulo Court of Appeals, Civil Appeal No. 1002891-42.2021.8.26.0100, judgment dated 07/12/2023) " Clawback clauses must be interpreted restrictively; generic default or subjective dissatisfaction is not presumed. " (STJ – Superior Court of Justice, REsp 1.809.871/SP, Reporting Justice Ricardo Villas Bôas Cueva, judgment dated 05/10/2021) " As long as expressly agreed upon, the clawback clause is effective in ensuring the financial balance of equity purchase and sale transactions. " (Minas Gerais Court of Appeals, Civil Appeal No. 1.0000.21.127671-2/001, judgment dated 11/14/2022) 7. Legal Risks and Drafting Considerations ·         Generic clauses may be deemed void due to uncertainty or abusiveness; ·         Clauses allowing unilateral reversion  without objective criteria are likely to be disregarded by courts; ·         Lack of clarity regarding deadlines and performance indicators leads to litigation and legal uncertainty; ·         Any penalty or default clause must be reasonable and proportionate , pursuant to Article 413 of the Civil Code. 8. Contractual Best Practices ·         Use auditable financial indicators  (e.g., EBITDA, net revenue); ·         Provide for technical verification mechanisms , such as accounting expertise or specialized arbitration; ·         Set a clear deadline  for the resolution condition to be verified; ·         Register the clause in the articles of association , when dealing with corporate equity; ·         Avoid subjective language , such as “at the sole discretion of the buyer” or “if dissatisfied.” 9. Final Considerations The clawback clause is a valuable tool for risk allocation  and contractual balance  in equity transactions. However, its enforceability depends on technical drafting , objectivity , and proportionality — failure to observe these may result in disputes or invalidation. Preventive legal counsel  is essential to structure clear, auditable, and legally effective clauses, ensuring predictability for the parties and avoiding conflicts over targets, timeframes, and the economic consequences of the transaction.

This article examines the liability of corporate officers for omissions in the performance of their duties when business insolvency is imminent or already established. Based on the duties of care, loyalty, and preservation of corporate interest set forth in the Brazilian Civil Code, the study explores the legal consequences of managerial inaction in the face of a company’s economic deterioration, including civil and criminal liability for willful or negligent omission. The article also analyzes case law on failures to adopt asset protection measures, to timely file for judicial reorganization, or to duly inform creditors. Corporate officers play a central role in managing the affairs of a business entity and must act in accordance with principles of sound management, corporate interest, and preservation of the company. In the context of financial distress, this duty becomes even more critical, as omissions may worsen the company’s condition and harm creditors, employees, and other stakeholders. This article proposes an analysis of directors’ liability not only for wrongful acts (e.g., fraud, deliberate mismanagement), but especially for unjustified omissions in the face of insolvency scenarios, focusing on the objective limits of the duty of care and the civil and criminal consequences of inaction. 2. Duty of Care of Corporate Officers under Brazilian Law 2.1 Legal Basis in the Civil Code Article 1,011, §1  – "The officer must exercise, in the performance of their duties, the care and diligence that any active and honest person customarily employs in the management of their own affairs." This provision establishes an objective duty of care , which includes: ·         Ongoing monitoring of the company’s financial health; ·         Implementation of measures to prevent insolvency; ·         Transparent communication with shareholders and creditors; ·     Seeking legal alternatives to preserve the company (e.g., judicial or out-of-court reorganization, debt restructuring). Failure to take or undue delay in taking such measures may constitute gross negligence or reckless management. 3. Omission and the Establishment of Civil and Criminal Liability 3.1 Civil Liability The omission of the officer may give rise to liability for damages when: ·         Reasonable steps to prevent the worsening of the crisis are not taken; ·         A false sense of normality is maintained while hidden liabilities accumulate; ·         The officer fails to inform shareholders and creditors about the insolvency status. " An officer is liable when, in the face of evident insolvency, they fail to adopt appropriate legal measures, thereby increasing creditors’ exposure. " (São Paulo Court of Appeals, Civil Appeal No. 1044520-39.2021.8.26.0100, judgment dated 08/15/2023) 3.2 Criminal Liability Brazil’s Bankruptcy and Judicial Reorganization Law (Law No. 11,101/2005) provides for criminal sanctions for willful or negligent omission by officers: Article 168, I  – It constitutes a bankruptcy crime to fail to file for bankruptcy or judicial reorganization when the state of insolvency is evident, to the detriment of third parties. Penalty : imprisonment from 2 to 6 years, plus a fine. 4. Duty to Preserve Corporate Assets and Mitigate Damages Corporate officers are required to take effective steps to avoid further deterioration of the business, such as: ·         Renegotiating contracts with suppliers and creditors; ·         Suspending new hires or high-risk investments; ·         Timely initiating judicial or extrajudicial reorganization proceedings; ·         Proposing capital contributions, ownership restructuring, or the sale of non-core assets; ·         Winding down operations in an orderly fashion if continuity is no longer feasible. Failure to meet these obligations may sever the relationship of trust between management and stakeholders, justifying the officer’s removal, disqualification from management roles, and personal liability. 5. Case Law on Managerial Omission in Business Crises " An officer’s failure to timely disclose the company’s bankruptcy status, while maintaining a façade of normalcy, constitutes a breach of good faith and results in joint liability for debts incurred during that period. " (STJ – Superior Court of Justice, REsp 1.812.501/SP, Reporting Justice Marco Aurélio Bellizze, judgment dated 09/12/2022) " It is improper for an executive to remain inactive in the face of deteriorating cash flow, delaying legal action to the detriment of third parties. " (Minas Gerais Court of Appeals, Civil Appeal No. 1.0024.18.320521-0/001, judgment dated 04/19/2023) " Passive and negligent management in pre-insolvency situations constitutes mismanagement and may justify the piercing of the corporate veil. " (São Paulo Court of Appeals, Civil Appeal No. 1038711-77.2020.8.26.0100, judgment dated 11/22/2022) 6. Best Practices for Corporate Officers in Times of Crisis ·         Regularly analyze financial and accounting indicators; ·         Seek professional advice on corporate restructuring and debt renegotiation; ·         Notify shareholders and co-managers about imminent risks; ·         Document decisions and justify the adopted alternatives; ·         Avoid assuming new obligations without realistic ability to fulfill them; ·         Timely assess the feasibility of judicial recovery or an orderly wind-down. 7. Final Considerations Corporate officers may be held liable not only for acts of bad faith or intentional wrongdoing, but also for omissive conduct  that, in the face of the company’s economic deterioration, reflects unjustified inaction and mismanagement. Civil and bankruptcy law impose objective duties of care and asset preservation , the breach of which may lead to personal, financial, and even criminal liability . A responsible and transparent approach to business insolvency is not only a legal obligation , but also an ethical duty  for those entrusted with leadership in business organizations.

This article examines the use of reverse mergers and the merger of dormant companies as tools for corporate reorganization, focusing on the distinction between lawful strategic planning and simulated or fraudulent schemes. The analysis considers the legal treatment of corporate mergers, the typical objectives pursued in reverse transactions or involving inactive entities, and the limits imposed by civil, tax, and corporate law. Doctrinal and case law criteria are highlighted to assess the legality and economic substance of such operations. Corporate restructuring is a legitimate and widely adopted instrument for operational optimization, business succession, tax efficiency, and the reorganization of corporate groups. Among the mechanisms recognized under Brazilian law are mergers, spin-offs, and incorporations (Articles 1,116 to 1,122 of the Civil Code and Articles 227 to 229 of the Corporations Law). Among these, incorporation refers to the operation by which one or more companies are absorbed by another, with the full transfer of their assets and liabilities. A particular variation — the reverse merger  — occurs when a parent company is merged into its own subsidiary, thus reversing the traditional merger logic. Another common yet legally sensitive practice is the merger of dormant companies (i.e., companies without active operations, maintained for accounting, tax, or registration purposes). This article analyzes the legal aspects of such operations, differentiating lawful planning from artificial or simulated structures based on corporate law, the Civil Code, and prevailing jurisprudence. 2. Reverse Merger: Concept and Legal Basis 2.1 Concept A reverse merger occurs when a parent company is absorbed by its subsidiary, resulting in the formal dissolution of the parent and the continuation of the subsidiary as the surviving entity. Example: Company A, which controls Company B, is merged into B. A ceases to exist as a legal entity, and B assumes its entire estate, including A’s stake in B. 2.2 Legal Basis Corporate law does not expressly prohibit reverse mergers, provided that: ·         There is proper resolution by the competent corporate bodies; ·         The transaction is duly documented and registered as required by law; ·         The interests of the company and its shareholders are preserved (Arts. 1,116–1,122 of the Civil Code). 3. Lawful Purposes of Reverse Mergers ·         Simplification of corporate structure (eliminating intermediate holding levels); ·         Use of tax benefits or accumulated tax credits in the subsidiary; ·         Succession planning, particularly in family holding companies; ·         Centralization of specific assets or liabilities, enabling accounting and administrative efficiency. Courts and legal scholars acknowledge the legitimacy of reverse mergers when supported by a lawful business purpose, proper documentation, and economic substance. " Although uncommon, a reverse merger is permissible when its economic purpose is proven and there is no fraud or sham involved. " (São Paulo Court of Appeals, Civil Appeal No. 1001982-23.2020.8.26.0100, judgment dated 05/11/2022) 4. Merger of Dormant Companies: Risks and Legal Boundaries 4.1 Concept This refers to the incorporation of companies with no regular business activity, which remain legally registered—sometimes with specific assets or liabilities, or with no relevant transactions at all. 4.2 Identified Risks ·         Use of the dormant company to absorb liabilities of the merging entity; ·         Attempt to "revive" a legal entity without economic purpose; ·    Simulated reorganization aimed at asset concealment, debt redirection, or hindering enforcement proceedings. " The merger of a dormant company without a demonstrable business purpose may be disregarded by the courts if characterized as a sham or fraud. " (STJ – Superior Court of Justice, REsp 1.689.718/SP, Reporting Justice Paulo de Tarso Sanseverino, judgment dated 10/14/2020) 5. Criteria for Distinguishing Lawful Planning from Simulation Lawful Planning Simulated or Fraudulent Structure Clear economic purpose No real business activity or objective Regular documentation and legal filings Flawed or incomplete documentation Functional and economic substance Shell company or merely a formal “vehicle” Valid and transparent shareholder decisions Concealment of shareholders or controllers Compliance with accounting standards Misuse for asset shielding or improper purpose The ality of a transaction will often depend on the demonstrable economic substance and good faith in structuring and executing the corporate acts. 6. Relevant Case Law " Corporate reorganization does not preclude liability where the misuse of legal entities to conceal assets or commingle patrimony is proven. " (STJ, REsp 1.780.245/SP, Reporting Justice Ricardo Cueva, judgment dated 06/23/2021) " The absorption of a dormant company without real business activity may constitute fraud on execution if carried out after the debt became known. " (Minas Gerais Court of Appeals, Civil Appeal No. 1.0000.21.102931-1/001, judgment dated 02/02/2022) " The validity of a merger depends on a legitimate economic purpose and the absence of harm to creditors or third parties. " (São Paulo Court of Appeals, Civil Appeal No. 1011122-67.2021.8.26.0100, judgment dated 09/30/2023) 7. Best Practices for Structuring Reverse or Dormant Mergers ·         Explicitly justify the economic purpose of the transaction; ·         Properly register all corporate acts with the Board of Trade and Federal Revenue; ·         Maintain active and regular accounting records for the involved entities; ·         Avoid corporate movements during enforcement proceedings without a clear purpose; ·         Adhere to transparency principles and protect minority shareholders’ interests. 8. Final Considerations Reverse mergers and the incorporation of dormant companies are legally recognized transactions, but their validity hinges on economic substance, transparency, and alignment with legitimate business goals. When used for asset concealment, sham transactions, or creditor fraud, such operations may be annulled by courts, potentially triggering the disregard of legal personality and liability for shareholders, managers, and third parties involved. Preventive legal counsel plays a crucial role in ensuring that strategic operations are not perceived as abusive, thereby safeguarding their legality, economic function, and documentary integrity in corporate reorganizations.

This article examines the contractual clauses known as tag along  and drag along , widely used in shareholders’ agreements, investment contracts, and corporate reorganizations. These clauses govern scenarios involving the transfer of corporate equity interests, ensuring protection for minority shareholders ( tag along ) or enabling joint exit coordination ( drag along ). The analysis considers their legal basis, validity limits, and criteria for enforceability, in light of case law and specialized legal doctrine. Best drafting practices are also discussed to ensure effectiveness and legal certainty in liquidity events. In business corporations—especially those with dispersed ownership structures or undergoing investment processes—it is crucial to include clauses regulating shareholder exits or the transfer of corporate control. Among such mechanisms, tag along  and drag along clauses stand out as contractual instruments aimed at managing liquidity events while balancing the interests of majority and minority shareholders. The tag along clause grants the minority shareholder the right to sell their stake under the same conditions offered to the controlling shareholder, protecting against unilateral transfers that may alter the company’s control. Conversely, the drag along clause allows the majority shareholder to compel the minority to sell their shares under previously agreed terms, thereby facilitating the full sale of the company. This article explores the legal aspects of these clauses, their contractual basis, practical application, and limitations, focusing on their growing relevance in the Brazilian corporate environment. 2. Legal Basis and Contractual Nature Both tag along and drag along clauses are atypical provisions permitted under the Brazilian legal system based on the principles of private and contractual autonomy (Articles 421 and 421-A of the Civil Code). They are obligatory in nature and must be included either: ·         In the articles of association (to be enforceable against third parties); or ·     In a shareholders’ agreement (binding only upon the signatories, by analogy to Article 118 of the Corporations Law for limited liability companies). These clauses are legitimate provided that they: ·         Do not contravene mandatory legal norms; ·         Respect the essential rights of shareholders, including withdrawal rights and fair valuation of their stake; ·         Are drafted clearly and objectively. 3. Tag Along Clause: Protection of the Minority Shareholder 3.1 Definition The tag along clause grants the minority shareholder the right to sell their interest under the same conditions offered to the majority shareholder in the event of a transfer of control. 3.2 Purpose To prevent the minority shareholder from being forced into a business relationship with a new controlling party not of their choosing, thus safeguarding against unilateral changes in control and potential abuses of controlling power. 3.3 Practical Example If shareholder A (holding 70%) sells their stake to a third party for R$100.000, shareholder B (30%) may exercise their tag along  right and require the third party to also purchase their stake under the same proportional conditions. 3.4 Essential Requirements ·         Applicability in cases of control transfer or significant shareholding changes; ·         Parity of sale conditions; ·         Deadline for exercising the right (e.g., 15 days after notice); ·         Mandatory prior notice to the minority shareholder. 4. Drag Along Clause: Coordination of Joint Exit 4.1 Definition The drag along clause allows the majority shareholder to compel the minority to sell their shares jointly, under pre-agreed terms and conditions, enabling the full sale of the company. 4.2 Purpose To prevent a minority shareholder from blocking strategic corporate transactions, such as mergers, acquisitions, or third-party investments, when a qualified majority agrees to proceed. 4.3 Practical Example Shareholder A (70%) wishes to sell their stake to an investor who requires 100% ownership. Under a drag along  clause, A may compel shareholder B (30%) to sell their shares under the same terms, thereby ensuring the transaction's feasibility. 4.4 Essential Requirements ·         Predefined quorum for invoking the clause (e.g., 66% or 75%); ·         Fair market value, based on an independent appraisal if necessary; ·         Safeguards against abuse by the majority; ·         Penalty clause for unjustified refusal. 5. Case Law and Legal Treatment " The tag along clause is obligatory in nature and aims to protect the minority shareholder against unconsented transfers of control, provided it is included in the articles of association. "(São Paulo Court of Appeals, Civil Appeal No. 1037819-35.2021.8.26.0100, judgment of 06/12/2023) " The exercise of the drag along clause cannot result in unjust enrichment and must ensure a fair and reasonable market value. " (Minas Gerais Court of Appeals, Civil Appeal No. 1.0000.21.103498-1/001, judgment of 09/28/2022) " The drag along clause is valid provided it is expressly included in the articles of association and complies with the principles of good faith and the social function of the contract. "(STJ, REsp 1.806.112/SP, Reporting Justice Paulo de Tarso Sanseverino, judgment of 08/09/2021) 6. Best Practices for Drafting the Clauses ·         Explicitly include them in the articles of association to ensure enforceability against third parties; ·         Clearly define price terms and payment methods; ·         Establish a fair and impartial valuation mechanism in case of disputes; ·         Set deadlines for the exercise of the rights or the triggering of the drag along ; ·         Provide penalties for non-compliance or omission; ·         Ensure compatibility with lock-up provisions, non-compete clauses, and buyback arrangements. 7. Final Considerations Tag along  and drag along clauses are essential legal tools in modern companies, particularly those with shared capital structures, institutional investors, or succession planning strategies. When clearly drafted, balanced, and pre-agreed upon among shareholders, these clauses enhance legal certainty, predictability in shareholder exits, and protection for minority investors. Conversely, their absence or improper formulation can result in complex litigation, hinder strategic operations, or allow abuse of control. Preventive legal planning, supported by technical and legal expertise during clause drafting and registration, is critical to safeguarding shareholder rights and avoiding costly corporate disputes.

This article examines earn-out clauses inserted in share purchase agreements, with an emphasis on legal aspects related to their validity, enforcement, risks, and controversies arising from their interpretation. Common in mergers and acquisitions (M&A) transactions, these clauses tie part of the purchase price to the future performance of the company, frequently giving rise to disputes over accounting criteria, performance targets, and duties of cooperation. The study analyzes the legal treatment, recommended contractual parameters, and the case law that guides their practical application. In share purchase transactions, especially in M&A deals, the use of earn-out clauses has become increasingly common. These clauses make part of the transaction price conditional upon the economic performance of the acquired company in a future period. This practice seeks to mitigate uncertainties regarding the company’s operational capacity and reduce the risk of information asymmetry between seller and buyer. However, the implementation of earn-out mechanisms requires precise contractual provisions, under penalty of complex litigation involving the calculation of results, accounting manipulation, lack of cooperation between the parties, or frustration of legitimate expectations. This article analyzes the legal structure of earn-out clauses, their contractual nature, the recommended safeguards for their drafting, and the main points of judicial conflict. 2. Concept and Legal Nature of the Earn-Out The earn-out is an ancillary contractual clause whereby the parties agree that part of the purchase price for the equity interest shall be paid subsequently, on a variable basis, depending on agreed financial, operational, or strategic targets—usually after the closing of the transaction (post-closing). Examples of targets include: • Gross or net revenue; • EBITDA (earnings before interest, taxes, depreciation, and amortization); • Profit margin; • Customer retention; • Expansion of units/franchises. Legally, the earn-out has the nature of a conditional and future obligation, governed by Articles 121 to 130 of the Brazilian Civil Code, and falls within the scope of the economic and distributive function of the contract (Articles 421 and 421-A of the Civil Code). 3. Purpose and Practical Applicability Earn-out clauses aim to: • Reduce uncertainties regarding valuation in companies with a short operating history, accelerated growth, or dependence on external factors; • Align incentives between the former controlling party and the new buyer; • Allow the seller to participate in future results, especially when there is growth potential. This structure is common in: • Emerging companies (startups, healthtechs, fintechs); • Family businesses undergoing succession; • Mergers involving gradual integration. 4. Risks and Common Sources of Disputes The main causes of controversy in earn-out agreements include: 4.1 Ambiguity in performance criteria • Vague metrics, incomplete formulas, absence of applicable accounting standards. 4.2 Manipulation of results • Changes in accounting policies, revenue suppression, artificial cost increases. 4.3 Lack of cooperation or access to information • Denial of access to financial documents required to assess performance. 4.4 Fraud or bad faith in post-closing management • Deliberately hindering the achievement of targets to avoid payment. “The earn-out clause must observe the principle of objective good faith and guarantee the seller reasonable access to the accounting information necessary to assess the agreed condition.” (TJSP, Civil Appeal 1037894-29.2021.8.26.0100, judged on 06/15/2023) 5. Contractual Requirements for Greater Legal Certainty To avoid litigation, the contract should include: • Objective and technical definition of performance indicators; • Clearly defined assessment period; • Applicable accounting standards (IFRS, BRGAAP, etc.); • Audit or independent expert clause in case of disagreement; • Seller’s right to access operational information; • Penalty clause or fine for breach of the payment obligation; • Rules concerning any changes in the business model (e.g., mergers or spin-offs during the earn-out period). 6. Case Law and Judicial Trends on Earn-Outs Although there is no specific legislation on earn-outs in Brazil, case law has recognized their validity, provided there is no abuse, deviation of purpose, or bad faith in the company’s management after the sale. “The earn-out clause is valid, provided that the criteria are clearly defined, and there is no right to payment if the target is not objectively met.” (TJMG, Civil Appeal 1.0024.19.264758-2/001, judged on 03/03/2023)   “The lack of transparency and cooperation between the parties, combined with unilateral accounting changes to frustrate the earn-out, justifies judicial review of the contract.” (STJ, REsp 1.942.013/SP, Justice Ricardo Cueva, judged on 11/18/2022)   7. Best Practices for Drafting and Executing Earn-Out Clauses • Draft clauses with the support of specialized legal and accounting professionals; • Include calculation simulations in the contract as an annex; • Ensure the seller’s access to documentation during the assessment period; • Avoid clauses that rely solely on the buyer’s discretionary actions; • Include an arbitration or independent expert clause, with clearly defined deadlines and procedures for dispute resolution. 8. Final Considerations Earn-out clauses represent a legitimate and efficient negotiation tool, provided they are structured with clarity, transparency, and contractual balance. Although useful for aligning expectations between buyer and seller, their success depends on the consistency of the adopted criteria, good faith in execution, and the predictability of the suspensive condition. Failure to observe care in contract drafting, combined with unilateral management of business activities after the sale, may give rise to complex litigation and discussions regarding nullity, revision, or breach of the earn-out obligation. The preventive role of the corporate lawyer—from due diligence to final contract drafting—is essential to ensure legal certainty, financial predictability, and protection of the interests of both parties involved in the transaction.