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What is corporate structure?

Edson Gissoni and Rual Rousselet – Executive Partners of DMS PARTNERS


UNDERSTANDING THE IMPORTANCE OF CORPORATE STRUCTURE IN A MEDIUM-SIZED COMPANY


The corporate structure of a medium-sized company is essential for its good

operation of the business, as it defines how the ownership and management of the company

will be organized. In a medium-sized company, the corporate structure should be

carefully planned to balance operational flexibility with

need for adequate governance and control, considering both the

particularities of the company's size regarding the tax and regulatory environment.


Components of the Corporate Structure in Medium-Sized Companies


1. Type of Company:

In medium-sized companies, the most common partnerships are

the limited company (LTDA.) and the public limited company (SA),

although other options, such as a simple partnership or a partnership

by simplified actions (SAS), can also be considered. The

choice of type of company directly impacts obligations

tax, the responsibility of partners and flexibility in the management of

enterprise.


  • Limited Liability Company (LTDA): It is more flexible and

widely used in medium-sized companies. The

liability of partners is limited to the value of their

quotas, which provides protection to assets

staff of the partners.

  • Public Limited Company (SA): Although more common in

large companies, it can also be an option

for mid-sized companies looking to expand their

capital and increase governance. The responsibility of

shareholders is limited to the price of the shares they own.


2. Shareholdings or Quotas:

The distribution of quotas or shares defines the control of the company. In

a medium-sized company, the founding partners usually have

significant participation in the company, which guarantees greater control.

In the case of a SA, participation is made through shares, which

may be preferential or ordinary, depending on the type of

society. The division of shares or stocks must be well defined to

avoid future conflicts and ensure a balanced distribution of

voting rights and profit sharing.


3. Governance Standards:

Corporate governance in medium-sized companies should be

structured to ensure that decisions are made in a

transparent and efficient. In an LTDA., governance tends to be

simpler, with partners actively participating in decisions.

In a SA, governance is more formalized and includes bodies

such as the Board of Directors and the Executive Board, the

which requires more structure and organization.


  • Board of Directors: In medium-sized companies

port that opt for SA, a

board of directors to direct the major

strategic decisions.

  • Members/Shareholders Meeting: Holding of

assemblies to deliberate important issues, such as

approval of balance sheets, changes in the structure of

governance and profit distribution.


4. Management Bodies:

In medium-sized companies, management is usually shared

between partners or shareholders, but may include a division of

responsibilities in a more formalized manner. It is common to

presence of an Executive Director or CEO responsible for

daily executive operations, while the partners and/or advisors

act in the most strategic decisions.

  • Executive Board: In medium-sized companies, the

board of directors may be composed of a group of executives

responsible for areas such as finance, marketing,

operations and human resources.

  • Governance and Audit Committees: To ensure greater

transparency and control, some medium-sized companies

also adopt specific committees, especially if

want to grow or raise funds from investors.


5. Hierarchy of Decision Making:

The hierarchy of decisions in medium-sized companies tends to be

more centralized in the early years, with the main partners or

shareholders having great influence on decisions. As the

company grows, it is possible to establish more efficient processes

formal, such as committees to approve large investments or

structural changes. The definition of who can make decisions in

company name helps to avoid confusion and optimize the

governance.


6. Division of Partners’ Responsibilities:

In a medium-sized company, partners usually define

clearly define your responsibilities, such as financial management,

commercial, production, among others. In a LTDA., the

liability of the partners is limited to the value of the shares that each

one owns, but there may be agreements about responsibilities

additional benefits for active partners. In a SA, shareholders can

have responsibilities further away from direct management, with the

administration being the responsibility of the Executive Board and

supervised by the Board of Directors.


7. Share Capital:

The share capital of a medium-sized company must be sufficient

to cover the initial operating and expansion needs of the

business. Share capital must also be distributed clearly

between partners or shareholders, reflecting their participation in the

company. In a limited company, this value is defined by the

partners and is a guarantee to cover any debts. In a SA,


  • share capital is divided into shares and can be easier to

increase, if necessary, by issuing new shares.


Fundamental Documents in the Corporate Structure of Companies

Medium Size:


  • Articles of Association: For medium-sized companies that adopt the model

of a limited company (LTDA), the articles of association are the main document.

It specifies the share capital, the division of shares, the governance structure,

the form of profit distribution and company management.

  • Articles of Association: For companies that opt for the partnership model

anonymous (SA), the articles of association are the document that regulates the structure of the

company, governance and shareholder participation.

  • Shareholders' Agreement: In medium-sized companies, it is common for

partners enter into agreements that regulate aspects such as the sale of shares,

shares linked to the agreement, the administration of the company, the rights of

transfer and preference, the councils, the “tag along” and “drag” clauses

along”, non-competition, profit distribution and succession in control

of the company. This agreement can be especially useful for preventing disputes and

ensure business continuity.


Importance of Corporate Structure for Medium-Sized Companies


Defining a solid and well-planned corporate structure is crucial for companies

medium-sized, as it directly impacts:


  • Tax Planning: Depending on the corporate model chosen, the

company will be subject to different tax regimes. The choice of model

right can generate significant tax savings, improving the

business profitability.

  • Corporate Planning: A well-defined corporate structure offers

legal security for both the company and its partners, minimizing

personal risks and protecting the company's assets, in case of debts or

disputes.

  • Financial Planning: The way in which social capital is organized and the

partners' responsibilities are defined and have a direct impact on the way in which

the company raises funds, pays its taxes and distributes profits, affecting its

financial sustainability.


Therefore, the corporate structure in a medium-sized company should be

carefully planned to ensure efficient administration, avoid conflicts,

mitigate risks and ensure the company's sustainable growth.

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