When Venture Capital Contracts Travel: Why Brazil is not Delaware

Venture capital (“VC”) lawyers and investors often treat standard U.S. VC contracts as if they were portable technology. If the underlying business problem is the same, the contractual solution should travel as well. In comparative perspective, however, that assumption is too optimistic.

At the Sixth LawFin Workshop, “U.S. Venture Capital Contracting Goes Global: Perspectives from Asia and Latin America,” we presented a paper arguing that the real question is not whether Brazilian corporate law formally permits sophisticated venture capital contracts, but whether if it provides the same functional support that U.S.-style VC contracting presupposes. Our preliminary conclusion is that it does not.

That distinction matters. The standard U.S. venture capital model did not emerge in a vacuum. It developed in a legal environment that is unusually receptive to private ordering. VC contracts are designed to address extreme uncertainty, severe informational asymmetries, and recurring conflicts of interest between founders and investors. The familiar toolkit – liquidation preferences, anti-dilution protection, control rights, and carefully structured exit arrangements – allocates downside protection, upside participation, and governance influence in highly calibrated ways. In the U.S. setting, and especially in Delaware, those arrangements benefit from a broader legal infrastructure that tends to respect privately negotiated allocations of risk and control ex post.

Brazilian law starts from a different institutional baseline. This is not because local corporate law rejects private autonomy. On the contrary, the corporate contract plays a central role, and Brazilian doctrine has long recognized the importance of contractual ordering in shaping internal corporate arrangements. But that is only part of the picture. Brazilian corporate law also contains mandatory rules, general clauses, and interpretive standards that narrow the practical space for private ordering in ways that are highly relevant for venture capital transactions.

In our view, three features are especially important.

The first is the doctrine of essential shareholder rights. Brazilian corporate law treats certain rights as belonging to an inalienable core of shareholder status. These include, most notably, the right to participate in profits, the right to share in liquidation proceeds, and preemptive rights in certain situations. Its significance goes beyond protection against majority abuse. It also means that contractual arrangements which directly or indirectly neutralize these rights may face serious enforceability challenges. This is an immediate source of friction for venture capital clauses that rely on highly asymmetric allocations of economic outcomes.

The second feature is the role of open-ended corporate law standards, particularly the duty of loyalty and related principles derived from objective good faith. In Brazil, shareholder conduct is not judged solely by reference to formal contractual entitlement. It may also be assessed against broader standards tied to the company’s common purpose, the legitimate expectations of the parties, and the abusive exercise of rights. That makes the system less predictable for venture capital contracting. A clause may appear valid in the abstract, yet still become vulnerable ex post if its operation is later characterized as disloyal, abusive, or excessively burdensome to other shareholders. This is precisely the kind of interpretive constraint that makes formal permissibility an unreliable guide.

The third feature is more institutional than doctrinal: the mandatory use of arbitration in venture-backed companies under Brazil’s regulatory framework. Arbitration may be efficient from the standpoint of individual dispute resolution, but it carries a systemic cost. Because proceedings are typically confidential, they do not generate a public body of precedents capable of clarifying the legality and limits of recurring VC clauses. In a market that depends heavily on repeat contracting, standardization, and credible expectations about enforceability, the absence of visible case law may itself become a source of uncertainty.

These constraints become especially visible when one turns to specific clauses.

Consider liquidation preferences. In U.S. venture capital practice, they are standard tools for protecting investor capital and structuring the distribution waterfall in a liquidity event. In Brazil, however, they may be challenged on the ground that they effectively deprive other shareholders of meaningful participation in the company’s upside, potentially conflicting with the prohibition on pacto leonino (lion’s pact) and with the protected status of essential shareholder rights. There are, of course, counterarguments. One might say that sale proceeds in a liquidity event are not identical to corporate profits. But even if that view is ultimately persuasive, the critical point remains: liquidation preferences carry materially greater enforceability risk in Brazil than they do in Delaware.

A similar problem arises with anti-dilution protection, though in a different form. In the United States, anti-dilution adjustments are often embedded directly into the mechanics of preferred stock conversion. In Brazil, equivalent outcomes usually depend on more cumbersome structures, such as subscription warrants or future capital increases that require additional corporate acts and, frequently, the cooperation of other shareholders. This creates hold-up risk, procedural friction, and greater exposure to litigation. Even where Brazilian practice has developed substitutes, these are not necessarily functionally equivalent to the U.S. model. They may instead be inferior alternatives: available in theory, but costlier, less predictable, and harder to enforce in practice.

When assessed through the lens of functional equivalence rather than formal permissiveness, Brazilian corporate law cannot be described as fully conducive to the standard architecture of venture capital contracting. That does not mean VC is impossible in Brazil, but rather that replicating the canonical U.S. model is legally costlier, less certain, and potentially less effective. It may also help explain, at least in part, why alternative structures – including offshore holding arrangements – continue to play such an important role in Brazilian venture finance.

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Raphael Andrade is a Partner at Andrade Chamas Advogados.

Felipe Ferreira is a Partner at Andrade Chamas Advogados.

This blog is based on a discussion held at the Sixth LawFin Workshop U.S. Venture Capital Contracting Goes Global: Perspectives from Asia and Latin America on 18th March 2026. Visit the event page to explore more conference-related blogs.

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