In recent days, we've seen soccer teams like Botafogo and Cruzeiro transform into Football Corporations (SAF), a legal entity created by Law No. 14,193 of August 6, 2021, and their subsequent sale to investors. Let's talk a little about this new corporate structure in soccer.
1. How do football clubs work in Brazil?
In general, football clubs in Brazil are associations, that is, a group of people with the aim of practicing professional sports.
This model, adopted by the overwhelming majority of clubs in the country today, has some advantages, such as greater tax exemption, since the ultimate goal is not profit.
The Civil Code, in Article 53, determines that “Associations are formed by the union of people who organize themselves for non-economic purposes.”
The profit arising from the final activity will be used to increase the assets of the sports association, never for distributing profits to members.
2. What is a Football Limited Company (SAF)?
It consists of a specific company, created by Law No. 14,193/2021, whose main activity consists of the practice of football, men's and women's, in professional competitions, and is also subject to both the Corporations Law and the Pelé Law (Brazilian sports legislation).
We see here the separation between the club-association and the club-company (SAF), in which all issues related to the management and administration of the club are the responsibility of the Sociedade Anônima do Futebol.
The association club maintains the rights to the name, brand, symbol, and assets, having the option of integrating them into the SAF, that is, transferring them to a newly formed Football Limited Company.
3.How is a SAF constituted?
According to the terms of Law No. 14,193/2021 itself:
- (the) by transforming the original club or legal entity into a Football Public Limited Company;
- (b) by splitting the football department of the original club or legal entity and transferring its assets related to football activities;
- (w) by the initiative of a natural or legal person or investment fund.
In the event of the first two hypotheses occurring ("the" and “b”), the newly created Football Limited Company will succeed the former club or previous legal entity in administrative, labor (athletes and other employees) and contractual (of any nature) relations.
The SAF will have the right to participate in championships, cups or tournaments replacing the original club or legal entity, under the same conditions as they were in at the time of the succession.
Furthermore, the transfer of rights and assets to the Football Corporation is independent of authorization or consent from creditors or interested parties, including those of a public nature, unless otherwise provided for in a contract or other legal transaction.
Other relevant aspects refer to the cases in which there is no transfer of sports facilities, such as arenas, stadiums and training centers to the SAF, and the way in which the conditions for using the facilities will be provided for in the contract must be provided.
The original club will not be able to participate in professional competitions, which is the prerogative of the SAF that succeeded it.
The original club or legal entity may pay its share of the share capital in the Football Corporation by transferring its assets to the company, by way of example only, such as: name, brand, badges, symbols, properties, assets, fixed and mobilized assets, including registrations, licenses, sports rights over athletes and their economic repercussions.
4. Issuance of Ordinary Shares
The Football Corporation must issue class A ordinary shares for subscription exclusively by the succeeding club or original legal entity that constituted it.
Therefore, initially, the SAFs that will succeed Cruzeiro and Botafogo, respectively, must issue common shares owned by the former clubs.
From then on, clubs will be able to partially or fully sell their respective shares in the SAFs.
As long as Class A ordinary shares correspond to at least 10% (ten percent) of the voting share capital or the total share capital, the affirmative vote of its holder within the scope of the general meeting will be a necessary condition for the Sociedade Anônima do Futebol to deliberate on:
- I – Alienation, encumbrance, assignment, conference, donation or disposal of any real estate or intellectual property right granted by the club or original legal entity to form the share capital;
- II – Any act of corporate or business reorganization, such as merger, spin-off, incorporation of shares, incorporation of another company or transfer;
- III – Dissolution, liquidation and extinction; and
- IV – Participation in sports competition.
It is also worth noting that the following matters may be resolved by any corporate body on the basis of the consent of the holder of Class A common shares, regardless of the percentage of ownership in the voting or share capital:
- I – Change of name;
- II – Modification of the identifying signs of the professional football team, including symbol, coat of arms, brand, nickname, anthem and colors; and
- III – Change of headquarters to another Municipality.
5. Limitations
The controlling shareholder of a Football Corporation, whether individually or as part of a control agreement, may not hold direct or indirect stakes in another Football Corporation. Investors in Cruzeiro and Botafogo may not hold any stake in any other Football Corporation in Brazil.
In the event that a shareholder who holds 10% (ten percent) or more of the voting or total capital of the Sociedade Anônima do Futebol, without controlling it, participates in the share capital of another Sociedade Anônima do Futebol, shall not have the right to speak or vote at general meetings, nor may he participate in the administration of these companies, directly or through a person appointed by him.
6. SAF Responsibility
The Football Corporation is not responsible for the obligations of the club or original legal entity that constituted it, prior to or after the date of its constitution, except for the specific activities of its corporate purpose, and is responsible for the obligations that are transferred to it as provided for in § 2 of art. 2 of this Law, the payment of which to creditors will be limited to the form established in art. 10 of this Law.
The law also determines that the original club or legal entity is responsible for paying the obligations prior to the formation of the Football Corporation, through its own revenues and the following revenues that will be transferred to it by the Football Corporation, when formed exclusively:
- I – by allocating 20% (twenty percent) of the monthly current revenues earned by Sociedade Anônima do Futebol, in accordance with the plan approved by the creditors, pursuant to item I of the caput of art. 13 of this Law;
- II – by allocation of 50% (fifty percent) of dividends, interest on equity or other remuneration received from the latter, as a shareholder.
It should be noted that the administrators of the Sociedade Anônima do Futebol are personally and jointly liable for the obligations relating to the financial transfers mentioned immediately above.
The club president or the managing partners of the original legal entity will also be personally and jointly liable for the payment to creditors of the amounts transferred by the Football Corporation, as established in this Law.
As long as the Football Anonymous Society complies with the payments provided for in this Section, Any form of restriction on assets or revenues, by seizure or freezing order of amounts of any nature or type on its revenues, is prohibited, in relation to obligations prior to the incorporation of the Football Corporation.
7. Investment Raising
The Football Corporation establishes the possibility of raising investments through the issuance of debentures, which will be called “fut-debentures”, with the following characteristics:
- (the) remuneration at an interest rate not lower than the annualized yield of the savings account, with the stipulation of cumulative variable remuneration, linked or referenced to the activities or assets of the Football Corporation, permitted;
- (b) term equal to or greater than 2 (two) years;
- (w) prohibition of the repurchase of the fut debenture by the Football Corporation or by a party related to it and of early settlement by means of redemption or prepayment, except in the manner to be regulated by the Securities and Exchange Commission;
- (d) – periodic payment of income;
- (and) – registration of the debenture-fut in a registration system duly authorized by the Central Bank of Brazil or the Securities and Exchange Commission, in their respective areas of competence.
The resources raised through fut debentures must be allocated to the development of activities or the payment of expenses, costs or debts related to the typical activities of the Football Corporation provided for in this Law, as well as in its articles of association.
8. Tax benefits
Law No. 14,193/2021 creates the Specific Football Taxation Regime (TEF), making the Football Corporation subject to it. The TEF involves the monthly collection, through a single collection document, of the following taxes and contributions, to be calculated according to the cash basis:
- I – Corporate Income Tax (IRPJ);
- II – Contribution to the Social Integration and Public Servant Asset Formation Programs (Contribution to PIS/Pasep);
- III – Social Contribution on Net Profit (CSLL);
- IV – Contribution to Social Security Financing (Cofins); and
- V – Contributions provided for in items I, II and III of the caput and in § 6 of art. 22 of Law No. 8,212 of July 24, 1991.
In the first 5 (five) calendar years of the incorporation of the Football Corporation, it will be subject to the monthly and unified payment of the taxes referred to above, at the rate of 5% (five percent) of the monthly revenues received.
For the purposes of the law, monthly revenue is considered to be the total revenue received by the Football Corporation, including that relating to prizes and fan membership programs, except for that relating to the transfer of athletes' sporting rights.
From the beginning of the sixth calendar year of the incorporation of the Football Corporation, the TEF will be levied at a rate of 4% (four percent) of the monthly revenue received, including the taxes already mentioned, including revenue related to the transfer of athletes' sporting rights.
The original club or legal entity with tax liabilities prior to the formation of the Football Corporation not included in federal government refinancing programs may submit a transaction proposal.
9. Final considerations
The Football Corporations, introduced by Law No. 14.193/2021, constitute a vector of major transformations in the Brazilian football scene.
We are seeing several clubs starting to make the move to at least understand how they will operate in the Brazilian market.
I would like to highlight two positive aspects here: the ease of attracting investments that the law proposes, as well as the beneficial tax regime.
The success of the first cases in Brazil, such as Cruzeiro and Botafogo, will determine whether it will be a model to be followed by Brazilian clubs or not.
We have several examples of failed corporate clubs, such as Figueirense, Bahia S/A, and Vitória S/A. It's true that none of the examples mentioned were SAFs, especially since they're still very new.
As with everything in life, its success will depend on the way it is carried out, as well as the quality of management and administration applied to the institution.