Because it is characterized as the goal of all business activity and acts as a conjunctive factor of the interests of investors operating in the private market, profit, per se, is an ever constant paradigm within the business dynamics.
For this reason, Brazilian law enshrines the essential right of the investor (partner or shareholder) to receive profits earned by companies regardless of any manifestation to the contrary, whether by other partners or shareholders, or by the management of the company itself, and cannot be removed or withheld without cause, in disregard of the exceptions provided by law.
Also, as a legal obligation, companies must pay shareholders the minimum mandatory dividend, a kind of “floor” applicable to the payment of dividends, limiting the discretion of management and shareholders in allocating the result calculated in a given fiscal year.
In line with the above, recent decisions of the collegiate body of the Securities and Exchange Commission of Brazil (CVM), a federal agency under the Ministry of Economy and responsible for regulating and supervising private entities operating in the stock exchange and over-the-counter markets, have penalized the managers of joint stock companies who, even acting within the limits of their shareholders’ guidelines, disregard the dictates of the applicable legislation with regard to the distribution of profits and dividends.
For this reason, an extensive analysis of the company’s financial health and of future projects and cash requirements, projected by the companies’ management for the coming fiscal years, is appropriate when preparing the proposal for the distribution of the results ascertained and future budgets for the companies’ businesses, in order to ensure compliance with all legal grounds applicable to the distribution of dividends, as well as the maintenance of the company’s financial health, thus resulting in the preservation and prosperity of the company’s business.