The usufruct is a real right (direito real) over something of another that gives a person(usufructuary) the right to use and enjoy the property object of the usufruct as if it were the owner, without changing its characteristics, leaving the actual owner (called bare owner) the right to dispose of the property. Through usufruct, the elements of the right to property are dissociated: it is up to the usufructuary to use and enjoy something of others, while the bare owner, as the holder of the property, has the power to dispose of it.
The products and income of the property will be owned by the usufructuary , such as the rents of a property or the profits of a company. In addition, decisions on how to use the property are the responsibility of the usufructuary, whose obligations will be to watch over the asset and restore it to the bare owner at the end of the usufruct, which has its duration fixed at the time of the institution.
Among the causes of extinction of the usufruct, established by Art. 1.410 of the Civil Code, are the death of the usufructuary and the time fixed in its creation.
The usufruct may fall on movable property (shares, quotas, fund quotas and others) and real estate. It can be created both directly on the asset in favor of a third party, a hypothesis in which the bare owner retains ownership of the asset and transfer the right to use and enjoy, and through donation, when the donor transfers the property to a third party, but reserves for himself the right to use and enjoy the property.
It is, therefore, a relevant instrument of estate and succession planning, widely used in corporate succession structures, for example, when the patriarch or matriarch of a family company transfers its quotas or shares to successors, reserving for himself/herself the enjoyment, often in a lifetime way, of such corporate participation, in order to maintain control and perception of the fruits (profits) of the company.
Under corporate law, usufruct is a broad right, whose legal nature allows extensive customization in its creation, for example, on all shares or quotas or on part of them. It is also possible to establish the percentage of the products affected by the institute, so that usufruct and bare owner can divide the profits of the company. It is also possible to include rights of a political nature within the scope of the usufruct. However, economic rights must integrate the usufruct as they are part of the essence of the institute.
Perhaps one of the most important points of attention in the use of this legal institute in corporate law is related to voting rights. Law No. 6,404/76 (Corporation Law) regulates the usufruct in five provisions:
- 40 and 100, item I, point "f" (requirement to register the usufruct in the registration book of nominactive shares or in the statements of the financial institution, in case of nominative or book-entry actions, respectively);
- 114 (provides for the right to vote which, if not regulated in the instrument creating the usufruct, can only be exercised by prior agreement between the bare owner and the party entitled to the usufruct);
- 169, §2nd (establishes that the usufruct extends to shares distributed because of capitalization of profits or reserves); and
- article 171, §5th (provides that, in case of issuance of shares or securities, the right of first refusal shall be exercised firstly by the bare owner and, provided that if not exercised up to 10 days before the expiration of the established period, the usufructuary will be entitled to exercise the right of first refusal).
In this article, we analyze the main issues related to the voting rights in respect to the shares subject to usufruct.
Voting and participation in shareholders’ meetings
In accordance with Art. 126 of the Corporation Law, the shareholder must prove his/her condition as such to attend the general meeting. A shareholder may be represented by a proxy appointed less than one year before which shall be a shareholder, a manager of the company or lawyer and, in the case of publicly held companies, financial institutions are allowed. Therefore, the shareholder, by him/herself or by proxy, has the right to participate in the general meetings.
In the case of shares subject to usufruct, the law allows the usufructuary and the bare owner to regulate the right to vote among themselves in the instrument creating the usufruct or even verbally. The voting rights can be fully allocated to the usufructuary (provided that the provisions of Article 171, §5, of the Corporation Law regarding the exercise of the right of first refusal shall be complied with) or divided between the parties, according to the matter for example.
Of course, in the parties are silent with respect to voting rights, the subsequent conduct of the parties should be considered for purposes of interpreting the intention intended by those involved. If the vote is always exercised by the usufructuary, for example, it could be understood that the parties agreed on such a practice.
In this same sense, if there are shareholders' agreements, it is important that the holder of the voting rights in respect of the shares subject to usufruct is bound by any agreement - if it is the will of the contractors – in order to secure that it produces all the intended effects.
In the absence of agreement between the parties, Article 114 of the Corporation Law provides that the exercise of the right to vote is only possible by prior agreement between the bare owner and the person entitled to the usufruct, under penalty of non-exercise of the right to vote. It is, in fact, a true extraordinary legitimation that authorizes the vote by a person who is not a shareholder or his/her representative.
The legislative choice of consensus between usufructuary and the bare owner is intended to address the potential conflict of interest between those involved: on the one hand, the usufructuary, possibly interested in the largest distribution of dividends possible and, on the other, the bare owner, who may prefer, for example, the reinvestment of resources.
The doctrine and the comparative laws offer other solutions to the voting, establishing, in some cases, that it may be exercised exclusively by the bare owner (as holder of the position of shareholder even if subject to limitations in its full ownership), or, in other cases, by the usufructuary (as holder of the rights of possession, use, administration and enjoyment of the property). There are also mixed solutions, in which, depending on the matter, the rightholder changes. In the latter case, it is usual to assign to the usufructuary the right to vote on essentially administrative matters, and to the bare owner, on the other matters.
The conflict arises when there is no agreement between the bare owner and the one entitled to the usufruct. It can be enhanced if the shares represent a relevant percentage of the company's share capital or even control, and when there are rights arising from the vote, such as the right to withdraw.
The exercise of the right to withdraw
Pursuant to Art. 137 of the Corporation Law, the dissenting shareholder has the right to withdraw from the company, upon reimbursement of his/her shares, in the event of the approval of certain matters prescribed by law. Thus, the right to withdraw "consists, therefore, in the legal power to extinguish, by unilateral act, in the cases provided for by law, the relations that bind the shareholder to the company, moving to the position of creditor of the same, in the amount of reimbursement of the shares". It is, therefore, "the right of the shareholder to, by disagreeing with certain resolutions of the General Meeting, in the cases provided for by law, to withdraw from the Company upon reimbursement of the value of its shares". This is an essential right of the shareholder pursuant to Article 109 of the Corporation Law.
It occurs that the right to withdraw is intrinsically linked to the exercise of the vote, to the extent that this right can be exercised in the situations prescribed by law in which the shareholder: (i) has voted at the general meeting against the proposal approved later and (ii) has not voted in such a resolution.
Thus, in the absence of specific rules on the exercise of the vote, doubts may arise about the legitimacy of the bare owner to exercise the withdrawal of the company, especially in situations of conflict of interest with the usufructuary. For example, if the usufructuary votes in favor of the matters described in Art. 137, but the bare owner disagrees with the subject, could the bare owner exercise the right to withdraw?
In fact, the bare owner is the shareholder of the company registered in the company’s stock records (nominative or book-entry). The bare owner maintains the right to dispose of the shares and the exercise of the right to withdraw can be an act of disposition of the shares. Moreover, even if the vote is exercised by the usufructuary, it does not seem to us that it is possible to prevent the bare owner's access to the general meetings, for example. Even if the bare owner does not hold the right to vote, participation and discussion of the matters should be secured.
However, considering that the withdrawal affects the rights of the usufructuary and of the bare owner, prior agreement between both of them could be a requirement for the right to withdraw. In such cases, therefore, we believe that the analysis of the circumstances of the case may be decisive in determining who is the holder of the right. In any case, it is necessary to regulate this matter in the instrument of the constitution of the usufruct to improve the treatment of the relations between the bare owner and the person entitled to usufruct.
Rights of supervision and action
Finally, it is also questioned who would be the holder of the right to supervise the management of the company (Art. 109, III, Corporation Law) and to file liability actions against managers and controlling shareholders (Arts. 159 and 246 of the Corporation Law). In principle, in our view, the right of supervision could be able to be exercised by both the bare owner and the person entitled to usufruct: in accordance with the applicable legislation, the interest of both is unequivocal. As an example, we understand that the participation of the usufructuary and the bare owner in the general meetings should not be prevented, regardless of who is the holder of the right to vote in matters to be resolved.
In relation to the filing of liability actions against managers and controlling shareholders, in principle, we understand that there are arguments to argue that both, bare owner and the person entitled to usufruct, would be legitimate active parties to the action, but this analysis would depend on the circumstances of the case. However, the lawsuit against the management pursuant to Article 159 of the Corporation Law depends on prior resolution at a shareholders’ meeting. If the holder of the right to vote, for example, does not approve the filing of the lawsuit by the company, it does not seem coherent to us that the other person involved may subsequently file such lawsuit, as an extraordinary legitimate under the law.
As can be seen from the above reflections, the matter is complex, involves several interpretations, there is no jurisprudential uniformity and depends on the analysis of the circumstances of the specific case. In this scenario, a sophisticated legal advice is even more necessary in the drafting of the instrument for the creation of the usufruct, as well as a strong and robust structuring of the operation in which the instrument is included, especially in relation to the clarity of the rights attributed to the bare owner and the person entitled to usufruct.
 TJSP, 4th Chamber, Civil Appeal 53.836-4, Rep. Judge Cunha Cintra, j. 08.06.1998, "owners and person entitled to usufruct could regulate the voting exercise later and did so in a tacit manner in the general meetings held, because the usufructuaries always exercised the right to vote with the approval of the bare owners. (...) Contracts must be interpreted in accordance with the parties' conduct, in a kind of authentic interpretation, and it is for the judge to examine their conduct at the implementation stage."
 LAMY, Alfredo and PEDREIRA, José Luiz Bulhões. Companies' Law. Vol. I, 2009, p. 442, "In turn, the Shareholders' Agreement is perfectly valid. It was recognized as being the defendants [person entitled to usufruct] the exercise of the right to vote in respect to the shares given, which grants them legitimacy to subscribe it." TJSP, 4th Chamber, Civil Appeal 836-4, rep. judge Cunha Cintra, j. 06.08.1998.
 Previously, the matter was regulated by Art. 84 of Decree-Law No. 2,627 of 1940: "In the usufruct of shares, the right to vote may only be exercised by prior agreement between the owner and the person entitled to usufruct".
 LAMY, Alfredo and PEDREIRA, José Luiz Bulhões. Companies' Law. Vol. I, 2009, p. 390, "Your [of the usufructuary who votes] legal position is sui generis. With the fractionation of the property that operates with the institution of the usufruct, the person entitled to usufruct must be considered a person legitimized by law for the exercise of the right to vote. CARVALHOSA, vol. II, 489. As prescribed by JOSÉ LUIZ BULHÕES PEDREIRA (opinion not published), the exercise of the right to vote by the usufructuary, in this case, is also the sole hypothesis in which the law admits that the vote is exercised by those who do not have the quality of shareholder or their representative: the law requires that the shareholder who attends the general meeting proves his position as shareholder (art. 126, Corporations Law) and only admits representation by a proxy appointed less than a year."
 EIZIRIK, Nelson. The Law of S/A Commented. Vol. I. São Paulo: Quartier Latin, 2011, p. 646; CARVALHOSA, Modesto. Comments to the Corporations Act. Vol. II. São Paulo: Saraiva, 2011, p. 488.
 Italian law, for example, assigns the vote to the person entitled to usufruct, unless otherwise agreed between the parties, pursuant to Art. 2352 of the Italian Civil Code.
 CARVALHOSA, Modesto. Comments to the Corporations Act. Vol. II. São Paulo: Saraiva, 2011, p. 487.
 EIZIRIK, Nelson. Reform of the Corporations & Capital Markets. Rio de Janeiro: Renovar, , p. 61.
 COMPARATO, Fabio Konder. "Stock Usufruct And Almost-Usufruct. Limits to the Rights of the Person entitled to Usufruct." In: Essays and Opinions of Business Law. Rio de Janeiro: Forense, 1978, p. 88.
 There are different understandings, such as WALD, Arnoldo. "The Legal Regime for the Use of Limited Liability Company Quotas and Shares of Corporations". Revista de Direito Mercantil, Industrial, Econômico e Financeiro (Journal of Commercial, Industrial, Economic and Financial Law). São Paulo: Ed. Revista dos Tribunais, v. 77, January/March, 1990, p. 10, "The supervision of social business (...) is attributed to the person entitled to usufruct when the political rights are assigned to it".
 There is different case law, e.g. TJMG, AI n° 1.0024.05.827925-8/001, rep. Judge Alberto Aluízio Pacheco de Andrade, j. 14.03.2006, "It is a Corporation, in which the author acquired shares through the "Donation Contract in Advance of Legitimate", requiring the approval of the claims made, in order to suspend resolutions taken in general meetings without its presence. The appellee, bare owner of shares that were given to him, alleges that she is entitled to the full exercise of the rights reserved by law to the shareholders. It occurs, however, when there is usufruct, the bare owner does not have legitimacy to act as shareholder." The divergent vote of the judge Alberto Vilas Boas, however, indicates that "I do not know the argument that, pending the usufruct, the powers of the owner whose domain will only be consolidated on a future occasion are reduced, as the usufruct is the right of use and enjoyment over the other person's thing. However, I do not share the understanding that it would not be possible to the bare owner to exercise the right to supervise the acts of the corporation, despite not having the right to vote in the general meetings that may be held. In fact, art. 114 of the Corporation Law is not applicable, because the appellee does not intend to exercise the right to vote, but only to anticipate the effects of the declaratory decision in relation, among others, to the right to participate in the general meetings of the company, as well as other rights that are compatible with the legal condition it bears. In fact, the condition of bare he nominative shares does not deprive her of the legal power to be summoned to participate in the meetings of the corporation, since she is a shareholder, even if deprived of the voting power".