Brazil's Best Counsel 2023: Chapter Opening: IPO Readiness

Posted jeudi, mai 11 2023
Brazil's Best Counsel 2023: Chapter Opening: IPO Readiness


The decision to go public is one of the most important and complex to be taken by the management of a company, as it will profoundly change its corporate and organizational structure, strategic decisions, and the way it conducts its processes.

It is important that shareholders carefully evaluate the benefits and advantages against the associated obligations and costs before making the decision to go public, because in addition to the profound changes described above, it is essential to inform that this process is not simple. On the contrary, it is a long, arduous, complex path that requires investment of time and financial resources for success to be achieved.

In order to explore the topic a little more, below we list the main advantages and benefits of being a company listed on the capital market:

  • Attracting funds for project and expansion financing: attracting funds through the issuance of new shares is a line of financing that waives the payment of interest and periodic amortizations, and, after being listed, the company can also resort to new funding through the issuance of new shares.


  • Perpetuity of business: going public is also a process of professionalization of companies that, in many cases, are family-owned and have a low degree of Corporate Governance, since it allows the entry of new partners, greater transparency of operations and an increase in the degree of maturity of its internal controls, which will bring greater continuity to the business in succession processes.


  • Increase in the level of Corporate Governance: after the public offering, the company listed on the New Market segment must comply with a series of regulatory obligations and meet various Corporate Governance requirements, in order to provide its shareholders and the market with greater information transparency.


In contrast to the benefits and advantages presented above, it is important to consider and evaluate the obligations associated with the process, such as:

  • Disclosure of information to the market: public companies must periodically disclose financial, managerial and governance information to the market.


  • Greater image exposure: publicly traded companies are more exposed to the media in general, therefore, image risk must be constantly evaluated and monitoring actions implemented.


  • Vulnerability to market conditions: share price can be influenced by external factors such as climate change, political and macroeconomic conditions.


  • Cost of maintaining mandatory governance structures: in order to keep the mandatory governance structures functioning, the company will need to invest in hiring independent directors, auditing and consulting firms, among others.


Companies listed on the New Markert segment must follow specific Corporate Governance rules, the main ones being:

- Implementation of a statutory Board of Directors composed of at least three members, with 2 or 20% (whichever is greater) of them being independent from the company;

- The accumulation of positions of CEO and Chairman of the Board of Directors is prohibited;

- The implementation of a Fiscal Council with independent members;

- The company must implement compliance functions, internal controls and corporate risks, being prohibited the accumulation of functions with operational activities;

- The company must have its own Internal Audit area. Outsourcing will be possible as long as the independent audit company is registered with the Securities and Exchange Commission (CVM);

- The company shall set up an Audit Committee, statutory or otherwise, with at least three independent members;

- The company must disclose, annually, a summary report of the Audit Committee covering the meetings held and the main issues discussed, highlighting the recommendations made by the committee to the company’s Board of Directors;

- The company must prepare and disclose a Code of Conduct approved by the Board of Directors and applicable to all employees and managers;

- The company must prepare and disclose a Risk Management Policy. The risk management policy must include, at a minimum, the processes and, in each case, those responsible for identifying, evaluating and monitoring risks related to the company or its sector of activity, such as strategic, operational, regulatory, financial, political, technological and environmental; 

- The company must prepare and disclose internal regulations for the Board of Directors, internal regulations for the Audit Committee and other committees, internal regulations for the Fiscal Council, compensation policy, policy for appointing members of the Board of Directors, its advisory committees and statutory board, related party transaction policy and securities trading policy;

- The company must have its financial statements audited on a quarterly basis by an independent firm and its results must be disclosed to the market; and

- The company must hire a specialized IR (Investor Relations) professional and periodically disclose accounting, financial and governance information on its website.


It is worth noting that, beyond the New Market segment there are four more: B3 - Bovespa Mais, Bovespa Mais Level 2, Level 1 and Level 2. However, these segments have a lower volume of operations and are not so attractive to investors, as they do not require a high level of transparency in the disclosure of information to the market and the need to implement a robust Corporate Governance structure. For example, in the statistics released by B3 (currently the only Stock Exchange operating in Brazil) until September 2021, there were 271 companies listed, with 75%, equivalent to 204 companies, being listed in the New Market segment.


Brazil and its institutions have sought to strengthen and encourage more companies to access the capital market. In this sense, in order to modernize the regulatory framework and facilitate the access of Brazilian companies to the capital market, the CVM, through Resolution 160, announced a new regime for public offerings, which came into force on January 2, 2023 and brought as main changes and impacts:

- Unification and consolidation of the public offering regime, which was previously governed by different rules;

- Mandatory registration of all offers subject to the new rule;

- Every offer under the new rule will be considered public;

- Creation of two offering rites, ordinary (exception) and automatic (which will be the most used);

- Standardization and simplification in the format of documents to be filed and made available to regulatory bodies; and

- Agility in the IPO process and reduced regulatory compliance costs.

In addition to the unification and consolidation of the public offering regime, CVM Resolution 59, which will came into force on January 2, 2023, amended CVM Instructions 480/09 and 481/09, simplifying and improving the information, and also with the requirement to include information that reflects the practices related to social, environmental and corporate governance aspects of the issuers, known as ESG (Environmental, Social and Governance) practices.

Regarding the disclosure of aspects related to ESG practices, we highlight some relevant topics that should be addressed in the reference forms:

- The company will now describe the relevant effects of state regulation on its activities, specifically on the main aspects related to the issuer's compliance with legal and regulatory obligations related to environmental and social issues.

- The company must inform (in “practice-or-explain” format) whether it discloses information on ESG indicators in an annual report or other specific document for this purpose and, if so, provide details on said document, such as, for example, the methodology or the standard followed in its preparation, the type of information contained, the place where it can be accessed, the practices of greenhouse gas emission inventories, whether or not the report is audited by an independent entity, among others.

- Section 4 (Risk Factors) includes information on risk factors with the potential to influence the investment decision, in the categories of social, environmental and climate issues, including physical and transitional risks.

- The main characteristics of the composition of the management bodies and of the Fiscal Council must be informed, with quantitative information by gender, color or race and other diversity attributes that the company deems relevant.

- Information on the directors and members of the supervisory board of the issuer as to whether they are independent members and which criterion is used to determine independence should be included.

- When describing the remuneration policy or practice of the Board of Directors, the statutory and non-statutory Board of Directors, the Fiscal Council and the statutory committees, the company should inform the main performance indicators taken into account, including, where appropriate, indicators relating to ESG issues.

- The company must provide information on the characteristics of human resources, including indicators of diversity within each hierarchical level.

These changes are positive and will contribute to a better knowledge of the market about companies, including some of their practices related to ESG aspects.

According to the experts of the capital market, the new rules represent a great and positive advance for Brazil and will have a positive impact on the IPO (Initial Public Offering) processes. The expectation is that 2023 will have a high volume of new public offerings, which will be of great value for the country’s economic recovery.