In corporations, the controlling shareholder plays a central role in defining the company’s strategic direction. Holding the power to elect the majority of the directors and influence corporate decisions, this shareholder occupies a prominent position that, although legitimate, must be exercised within legal boundaries and in alignment with the interests and social purpose of the company as a whole.

However, this power is not always used in a balanced manner. In certain situations, the controlling shareholder may exceed the limits of their role and act for their own benefit and/or that of third parties, to the detriment of the company or other shareholders. This is the context in which the so-called abuse of control power arises, as provided for and regulated by the Brazilian Corporations Law (LSA).

Article 116 of the Brazilian Corporations Law (LSA) defines the controlling shareholder as the one who, directly or indirectly, exercises the power to direct the company’s activities and guide the operation of its corporate bodies. This definition makes it clear that control is not necessarily linked to holding the majority of voting shares, but rather to the effective exercise of influence over corporate decisions.

Control may be exercised by an individual, a legal entity, or even by a controlling group formed by two or more shareholders acting in coordination. This group may be a majority, when it holds most of the voting capital, or even a minority, as long as it is able to decisively influence the company’s management. In many cases, this joint action is formalized through shareholders’ agreements, as provided in Article 118 of the Brazilian Corporations Law (LSA).

The controlling shareholder, whether individually or as part of a group, tends to directly influence the composition of the executive board and the board of directors, appointing trusted individuals to strategic positions. In this sense, it can be said that, although the controller does not directly perform executive functions, they occupy a structural leadership role, significantly influencing the company's direction both within and outside the general shareholders’ meeting.

As Professor José Alexandre Tavares Guerreiro points out:

"With regard to the power of the controlling shareholder, it has its own forum, which is the general shareholders’ meeting, where their vote prevails; however, it is undeniable that the exercise of that power also occurs outside the general meeting, through the use of informal influence, insufficiently regulated, which is expressed in the legislated formula of ‘directing the company’s activities and guiding the operation of its bodies’."

Given this privileged position, the Brazilian Corporations Law (LSA), in its Article 117, imposes a series of duties and limits on the controlling shareholder, such as the obligation to act with loyalty and good faith, guiding their decisions in the interest of the company. However, when this power is used with an improper purpose — for personal benefit or that of third parties and to the detriment of the company or other shareholders — it constitutes an abuse of control power.

According to this provision, the controlling shareholder is liable for damages caused by acts committed through abuse of power, which may take various forms, such as: directing the company toward purposes unrelated to its corporate objective or harmful to the national interest; favoring another company to the detriment of minority shareholders or the national economy; promoting the liquidation of a profitable company or forcing corporate transactions (such as mergers, consolidations, or spin-offs) to obtain undue advantage; amending the bylaws, issuing securities, or adopting decisions contrary to the company’s interest and harmful to shareholders, employees, or investors; appointing directors or audit committee members who are clearly unfit; inducing or attempting to induce such agents to commit illegal acts, including seeking their subsequent ratification by the shareholders’ meeting; entering into contracts with the company on favorable or inequitable terms; approving irregular financial statements for personal gain; failing to investigate well-founded reports of irregularities; and contributing non-related assets when subscribing to company shares. These actions, by distorting the institutional role of control, violate the controlling shareholder’s duty of loyalty and give rise to civil liability.

It is important to note that the characterization of abuse often does not depend on the controlling shareholder’s intent — it is sufficient that their conduct caused harm to the company or to other shareholders through the improper exercise of control. In such cases, the Brazilian Corporations Law (LSA) imposes on the controller the obligation to repair the damages caused and provides for their civil liability.

Thus, the abuse of control power represents a serious violation of corporate balance, as it breaks the logic of separation between the controller’s interest and the corporate interest, undermining the trust essential for the healthy functioning of the corporate structure.

The abusive exercise of control power produces significant legal effects, both in terms of civil liability and the governance dynamics of the corporation itself. According to Article 117 of the Brazilian Corporations Law (LSA), a controlling shareholder who acts abusively is subject to the obligation to compensate for losses caused to the company, to other shareholders, to employees, or to third parties harmed by their actions. Liability may be joint with directors or audit committee members who collaborated in the unlawful acts or failed to fulfill their supervisory duties, as provided in paragraphs 2 and 3 of the same article.

In addition to compensating for damages, the abuse of control power can have reputational and institutional consequences. In publicly held companies, for example, abusive conduct by the controlling shareholder may trigger investigations by the Brazilian Securities and Exchange Commission (CVM), resulting in administrative sanctions and, eventually, civil lawsuits filed by the Public Prosecutor’s Office or by the CVM itself. It is also possible for harmed shareholders to bring individual or collective actions seeking compensation for losses resulting from abusive resolutions or conduct.

In certain cases, repeated abuse may undermine the controlling shareholder’s legitimacy in the eyes of the market, affecting the company’s attractiveness to investors and weakening its governance. For this reason, the accountability of the controlling shareholder is not limited to the legal sphere, but can impact the stability of the corporate structure as a whole—especially when there are no internal containment mechanisms, such as independent boards to oversee conduct or clear corporate governance rules.

A clear definition of the controlling shareholder’s duties and the accountability for abusive conduct are fundamental tools to ensure the integrity of corporate decisions, the protection of minority shareholders, and the maintenance of a balanced and trustworthy business environment. In this context, the conscious and ethical conduct of the controlling shareholder is essential for sound corporate governance and for the sustainable development of corporations in Brazil.

By: Maria Luisa Carvalho Teixeira
Corporate Law | CPDMA Team

References:

EIZIRIK, Nelson. Brazilian Corporations Law with Commentary. 2nd ed. São Paulo: Quartier Latin, 2021.

GUERREIRO, José Alexandre Tavares. Sociology of Power in Corporations. Revista de Direito Mercantil, Industrial, Econômico e Financeiro, São Paulo, no. 77, pp. 50–57, 1990.

BRAZIL. Law No. 6,404 of December 15, 1976. Provides for corporations. Official Gazette of the Union: section 1, Brasília, DF, Dec. 17, 1976.