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AdvancedBrazilian REITs · Lesson A2.2 · Module A2

Can the fund change its type later?

Module A2: Governance: the unitholder's power

11 slides~5 minquiz at the end

In this lesson

  • Changing policy means changing bylaws
  • What the bylaws lock in
  • The exit for those who disagree
See the slides
Glass office towers in São Paulo

Brazilian REITs · Lesson A2.2

I bought an office REIT. Can it become something else?

Yes, without asking you, if the shareholder meeting approves.

Luiz Pantoja · Wikimedia Commons · CC BY 2.0

How the change happens

From proposal to a new fund

  1. Proposalchange the investment policy
  2. Shareholder meetingqualified quorum (lesson A2.1)
  3. New bylawsapply to everyone
  4. Offices → Hybridsame fund, different strategy

Changing the policy means changing the bylaws. CVM Resolution 175, general part, art. 70, V.

Where to look first

What the bylaws already say

  • Investment policywhat the fund may invest in
  • Locked itemspoints that only change with shareholders' prior consent
  • Where shares tradedelisting is also the meeting's call
  • Meeting noticewhere the change shows up first

CVM Resolution 175, Annex III, arts. 11, II, “a”, and 12, I.

The vote

A fund with 5 million shares and 60,000 holders

5,000,000×25%=1,250,000vote floor
1,300,000in favor (26%)>1,250,000=approvedbecomes hybrid

You voted against

Two doors, only one is real

Ask for a refund

doesn't exist

  • A policy change gives no right to get your money back

Sell on the exchange

at market price

  • Or stay on as a holder of the new fund

Mergers, spin-offs and transformations have their own refund rule (CVM 175, general part, art. 119).

The cost of disagreeing

The share fell 8% on the news

2,000 shares×R$ 100before=R$ 200,000
2,000 shares×R$ 92after=R$ 184,000−R$ 16,000

Whoever leaves, leaves at that day's price. Illustrative numbers.

A change with tax impact

What if the fund delists?

Exchange only

0% tax

  • Exempt income, if the other conditions are met

Off the exchange

loses the exemption

  • Income starts having tax withheld at source

Law 11,033/2004, art. 3, III (lesson I5.1).

Remember this

Three ideas from this lesson

  1. The fund is its bylawsAnd bylaws change at a meeting, with a qualified quorum.
  2. No refund doorWhoever disagrees with the new policy exits by selling on the exchange.
  3. Read the noticeDelisting, for example, removes the income tax exemption.

Quick quiz · 1 of 2

The fund approved leaving the exchange. Tax effect for individuals?

See answer

It loses the exemption. The law requires shares traded exclusively on an exchange or organized OTC market.

Quick quiz · 2 of 2

You voted against going hybrid, but it passed. Now what?

See answer

Stay or sell. The decision binds everyone, and a policy change gives no refund right.

Lesson complete

Next lesson

A2.3Advanced · Lesson A2.3How to replace the manager or administratorA bad manager can be removed: the rule exists, the hard part is the votes.Continue
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Image credits
  • Luiz Pantoja · Wikimedia Commons · CC BY 2.0 — Wikimedia Commons
  • Christina Morillo · Pexels · Pexels License — Pexels

Educational content, written for learners. Not investment advice.