exercising voting rights in the separate election of a member of the audit committee of a closed joint stock company

Abstract

This paper aims to analyze the right of the controlling or majority shareholder, with voting rights, in a closed joint stock company, who has preference shares without voting rights or with restrictions, to participate in the separate election of the preference shareholders’ representative on the Audit Committee. We will demonstrate that this right derives from the constitutional principle of legality, whereby any restriction of a right must be provided for by law, not admitting extensive interpretation to mitigate shareholders’ rights. We will propose that the removal of the controlling or majority shareholder’s right so as not to be able to vote in the separate election of the preference shareholders’ representatives would flagrantly violate the shareholder’s right to ownership, since it prevents him from exercising his full ownership rights. We will also demonstrate that this right of the shareholder is exercised as a result of his political power and power of control, natural to the joint stock company system of majority decision making, and that its restriction will attribute a right to the preference shareholder which was not provided for by the company’s bylaws or by the law itself, and that the shareholder without voting rights or with restricted voting rights may exercise the right to audit in other ways provided for by the law. Finally, we will demonstrate that the Brazilian Securities and Exchange Commission’s Guidance Statement No. 19/90 does not apply to private joint stock companies, since that federal autarchy has regulatory competence only in the securities market with trading on the stock exchange or over-the-counter market and that because it does not have the force of law, it should not restrict shareholders’ rights to free enterprise, autonomy of will and freedom to contract.