The dissolution of a company is a highly relevant topic in Corporate Law. Whether total or partial, the withdrawal, exclusion, or death of a partner can generate conflicts among those involved, especially regarding the assessment of entitlements to be paid to the withdrawing or excluded partner or their successors.

The Civil Code provides general guidelines for partial dissolution and the assessment of entitlements, but in practice, debates arise regarding the methodology to be used, especially given different doctrinal and jurisprudential interpretations. One of the most discussed points is the non-application of the discounted cash flow method as the primary approach, as established by the Superior Court of Justice (STJ) in the judgment of RESP No. 1.877.331 – SP, in 2021.

Given this scenario, this article will address the regulatory aspects of the partial dissolution of a company and the methods for assessing entitlements, analyzing the main court decisions on the subject. Additionally, it will discuss the importance of well-structured contractual clauses and the execution of a shareholders' agreement to regulate the procedure, as well as the relationship of these conditions with the proposed amendment to the Civil Code, recently submitted to the Federal Senate.

Partial Dissolution of a Company: General Aspects and Provisions in the Civil Code

Partial dissolution occurs when one or more partners leave the company without the complete termination of business activities. The Civil Code regulates partial dissolution in the following cases:

• Unmotivated Withdrawal of a Partner (Art. 1.029, Civil Code) – Allowed in companies with an indefinite term, provided that a notification is given at least 60 days in advance, and in companies with a fixed term, by judicially proving just cause.
• Exclusion for Just Cause (Arts. 1.030 and 1.085, Civil Code) – Occurs when a partner violates their duties or engages in acts that compromise the continuity of the company, allowing their exclusion by decision of the other partners or through judicial ruling.
• Death of a Partner (Art. 1.028, Civil Code) – Unless otherwise stated in the partnership agreement, the heirs of the deceased partner must be compensated for their corresponding entitlements.

The assessment of entitlements is the process that determines the value of the departing partner's share in the company. Article 1.031 of the Civil Code states that, in the absence of a different provision in the partnership agreement, the liquidation of the withdrawing partner's share must be based on the company's financial situation as of the date of the event that caused the partial dissolution.

For this purpose, the legislation requires the preparation of a balance sheet specifically drawn up on the date of the company's resolution, meaning that the accounting records must accurately reflect the company's financial position at that moment. The legal criterion for assessing the entitlements of the withdrawing partner is the accounting net equity, which, in summary, corresponds to the difference between the company's assets (goods and rights) and liabilities (obligations), as recorded in the accounting books.

To complement the concept established by civil legislation, the Code of Civil Procedure, in its Article 606, states that, in the preparation of the determination balance sheet, the company's assets and rights, both tangible and intangible, must be valued at exit price, as well as liabilities, which must be assessed using the same criterion. This means that the accountant or economist must evaluate the company as if it were undergoing total liquidation, determining the amount to which each partner would be entitled.

However, there is debate over whether this method adequately reflects the true value of the withdrawing partner's share. In some situations, there may be undervalued assets or liabilities that are not properly recorded, which can lead to distortions in the calculation. For this reason, alternatives such as adjusted net equity have been adopted, correcting certain asset values to better reflect the company’s economic reality.

Methods for Assessing Entitlements and Jurisprudential Perspectives

Until April 2021, when the Superior Court of Justice ruled on RESP No. 1.877.331 – SP, the most commonly used methodology for assessing entitlements was the discounted cash flow ("DCF") method.

Conceptually, the DCF method defines the value of an asset based on the present value of its expected future cash benefits, discounted by an attractiveness rate that reflects the partners' opportunity cost. In simpler terms, it is a method that estimates the future profitability of the asset.

One of the main controversies regarding the non-application of the DCF method in the assessment of entitlements is related to the valuation of intangible assets, such as a company's brand. This occurs because the determination balance sheet, when prepared, simulates the total dissolution of the company's net assets, while intangible assets have economic value tied to the company's operations and its ability to generate future results. Thus, when the company is treated as dissolved, these assets lose their usual valuation, as their market value directly depends on the business's continued operation.

However, the intention of jurists and legislators was precisely to prevent the dissenting partner from benefiting exclusively from the projected future profitability provided by the DCF method without assuming the inherent risks of the company's continuity. In other words, it would not be reasonable for their share to be valued based on future earnings expectations while they would not be held accountable for potential operational losses.

Thus, the use of the discounted cash flow method is recommended in corporate transactions that involve valuations based on market metrics, such as acquisitions, mergers, or incorporations, where only the future earnings projections of the target companies are considered. In other words, it is most appropriate when evaluating an investment.

In the case of the partial dissolution of a company, the valuation of the withdrawing or excluded partner's share must be determined based on the company's financial situation on the date of the resolution, following the criteria detailed earlier.

The Importance of Contractual Clauses and the Shareholders' Agreement

As explained above, until 2021, the discounted cash flow method was widely used to evaluate the shares of a withdrawing partner, highlighting the legal uncertainty caused by controversial judicial decisions and the continuous shifts in paradigms.

To avoid the delays of judicial corporate proceedings, which often drag on for years and, when concluded, may result in inactive companies without resources to pay the withdrawing partner, it is essential that partners establish clear criteria for future asset valuation at the time of the company's formation.

In this regard, partners can establish metrics or objective criteria to define how the company will be valued in the event of a partner's exit, exclusion, or sale of shares. Although no one starts a business expecting its end, it is crucial that partners structure a shareholders' agreement with clauses that allow for the future revision of valuation criteria, based on a predetermined increase in the company's revenue and results. This way, partners can revisit the criteria and reflect the most up-to-date scenario of the company in the event of a partial or total liquidation.

Thus, it is important for entrepreneurs to consider that corporate instruments are the primary allies of the parties, as they can accurately reflect the true intentions of the partners.

Proposal for Amendment to the Civil Code: Potential Advances

With the aim of providing clearer and more specific regulations to reduce litigation associated with these processes, the draft reform of the Civil Code, currently under discussion in the Federal Senate, proposes significant changes regarding the assessment of entitlements in cases of partial dissolution of companies.

As previously mentioned, Article 1.031 of the Civil Code states that, in the absence of a contractual provision to the contrary, the assessment of entitlements for a withdrawing partner must be conducted based on the company’s financial situation on the date of resolution, verified through a specially prepared balance sheet. The draft reform proposes a revision of this article to align it with the existing concept in the Code of Civil Procedure, detailing the criteria and procedures to be adopted in the assessment of entitlements, aiming to standardize practices and minimize interpretative divergences.

The objective of the draft reform is to reduce judicial intervention in partnership agreements, providing greater legal certainty and predictability for partners, so that when forming their companies, they draft the contract in a detailed manner to better safeguard their interests. However, there are criticisms that the proposed changes may not be specific enough to fully achieve this objective, leaving room for potential legal disputes due to differing interpretations.

In summary, the proposed amendment to the Civil Code represents an important step toward greater legal certainty in corporate relationships. However, for the intended advancements to materialize, it is essential that the legislator provides detailed methods and criteria for the assessment of entitlements, offering guidance so that partners can define the best valuation criteria, minimizing ambiguities, and reducing litigation in the corporate sphere.

Conclusion

Considerando os aspectos tratados, é fundamental contar com o apoio jurídico especializado para garantir a correta elaboração de atos societários, como contratos sociais e acordos de sócios, prevenindo litígios e assegurando conformidade com a legislação vigente. O suporte técnico adequado contribui para a tomada de decisões estratégicas e minimiza riscos perante um eventual processo de dissolução parcial de sociedade.

Maria Luisa Carvalho Teixeira and Liège Fernandes Vargas

REFERENCES:

Special Appeal No. 1.877.331 – SP, Third Panel, Superior Court of Justice, Rapporteur: Ricardo Villas Bôas Cueva, judged on 04/13/2021.

ASSAF NETO, Alexandre. Valuation: métricas de valor & avaliação de empresas. 2. ed.  São Paulo: Atalhas, 2017.

NERY JUNIOR, Nelson; NERY, Rosa Maria de Andrade. Código Civil comentado. 11. ed. São Paulo: Revista dos Tribunais, 2014.

BRASIL. Código Civil. Lei nº 10.406, de 10 de janeiro de 2002. Diário Oficial da União: seção 1, Brasília, DF, 11 jan. 2002.

BRASIL. Código de Processo Civil. Lei nº 13.105, de 16 de março de 2015. Diário Oficial da União: seção 1, Brasília, DF, 17 mar. 2015.