In previous articles in this column1, we have sought to show that two classic problems in the Law of Organizations remain far from any definitive solution. The first concerns agency theory and the need to understand, from a legal perspective, the conflicts arising from the separation of power, management, and the holding of interests. The second relates to corporate control, which cannot be reduced to mere ownership of a majority of shares, as it consists of a position of power capable of directing corporate activities and guiding the functioning of the company’s governing bodies.
There is a third issue, situated precisely at the intersection of the previous two, that deserves increasing attention. To what extent can a parent company direct, supervise, and integrate the activities of a subsidiary without ceasing to be merely a parent company and instead becoming, itself, a participant in the activities carried out by the subsidiary? Our approach in this text focuses on de facto groups. Thus, when we refer to a “group,” we are referring to de facto groups.
The question takes on special importance in corporate groups. The group combines two realities that do not easily align. From an economic perspective, there is often unity in strategy, coordination, planning, information flow, resource allocation, and the sharing of administrative structures. From a legal standpoint, however, the legal entities that make up this organization remain distinct. Each corporation retains its own assets, governing bodies, officers, creditors, and legal interests.
It is precisely this tension between economic unity and legal plurality that makes the law of corporate groups so fascinating and, at the same time, so complex.
The problem does not lie in choosing one of these two realities and ignoring the other. It would not be correct to disregard the autonomy of the companies simply because they belong to the same group. Nor does it seem appropriate to turn a blind eye to the economic organization that actually exists when the structure of the parent company extends to the subsidiary to the point of participating in its management, supervision, or the very activities it carries out.
The real legal problem lies at this boundary.
1. The group does not eliminate the subsidiary’s legal personality
Separate legal personality is the starting point.
The creation of subsidiaries allows distinct activities to be organized through equally distinct legal entities. This separation has significant effects. Assets are segregated, contracts are entered into by specific entities, risks are allocated, responsibilities are distributed, and creditors know—at least in principle—which assets are liable for the obligations they have assumed (at least voluntary creditors).
There is nothing exceptional about this. On the contrary, the formation of groups is one of the standard forms of organization in contemporary business. Klaus Hopt2 (whose text is cited in the bibliography) observes that groups—and not just individual corporations—constitute a central reality of contemporary business organization, ranging from highly centralized structures to organizations in which subsidiaries retain a high degree of autonomy (as should be the case with de facto groups).
The problem arises when legal autonomy is confused with economic isolation.
A subsidiary does not cease to have its own legal personality simply because it is subject to the control of another corporation. But legal personality does not mean, either, that the parent company is necessarily uninvolved in everything that occurs within the subsidiary.
It is necessary to distinguish between two questions: the first is structural—Who controls the company? The second is functional—What does the parent company actually do with this power (and how is the power and duty to control structured)?
The Brazilian Corporations Law offers a particularly interesting starting point. Article 116 does not define the controlling entity solely by its ownership of shareholder rights. The provision requires, in addition to the permanent ability to prevail in resolutions and elect a majority of the directors, the effective exercise of that power to direct the company’s activities and guide the functioning of its governing bodies.3
Control, therefore, is not a mere formal position. It has a functional dimension.
But it does not follow from this that controlling is the same as managing.
2. Control Is Not the Same as Management
The controlling shareholder holds political power over the company. They can influence its direction, select directors, vote at shareholders’ meetings, and determine the outcome of numerous resolutions.
Managers perform a different function.
Law No. 6.404 of 1976 distributes powers among the corporate bodies. Article 121 grants broad authority to the general meeting to decide on corporate matters. Article 139, however, establishes that the powers conferred by law upon the administrative bodies cannot be transferred to another body. There is, therefore, a functional reserve of administration (rather than a reserve of subject matter).
This structure is important because a corporation does not possess a “psychological will” like a natural person. Natural persons think, desire, prefer, and decide. Legal entities require mechanisms that convert individual expressions into decisions legally attributable to the organization (the so-called “corporate will”).
The controlling shareholder may desire a certain outcome. He or she may conceive of it. He or she may advocate for it. He or she may use the legal instruments afforded by his or her position in the corporation to steer the corporation in that direction. Even so, the controlling shareholder’s psychological will is not automatically equated with the subsidiary’s legal will. It is the corporate structure of the company that brings about this transformation. The shareholders’ meeting deliberates within the scope of its authority. The board of directors exercises the powers reserved for it by law and the articles of incorporation. The executive board conducts day-to-day management and represents the company within the limits of its powers (ultimately, it binds the company in its dealings with third parties—it is the company’s external management).
This division of roles is not mere formalism. It makes it possible to identify who made the decision, on whose behalf it was made, and to which legal entity a given decision should be attributed. This aspect becomes even more delicate within corporate groups because the controlling entity has the means to influence precisely those who serve on the subsidiary’s governing bodies.
3. The Manager Who Serves Two Masters
Here lies one of the most interesting problems in corporate group governance. Imagine that the same person serves on the board of the parent company and on the board of a subsidiary. From an economic perspective, the situation may seem perfectly natural. This integration facilitates the flow of information, the implementation of group policies, the reduction of coordination costs, and strategic alignment. From a legal perspective, however, an uncomfortable question arises: how can one loyally serve two masters when their interests do not align?
The Brazilian Corporations Law provides a very clear answer. Article 154 establishes that a director must perform his or her duties to achieve the company’s objectives and interests. Paragraph 1 of that article is even more explicit. A director elected by a particular group or class of shareholders has the same duties toward the company as all other directors and may not set aside those duties to defend the interests of those who elected him or her. Article 155 completes this framework by stipulating that a director must act loyally toward the company (and we are not yet addressing in this text the more complex issue of defining the corporate interest in situations involving affiliated companies).
This set of rules has an important consequence. A director appointed by the parent company is not legally an agent of the parent company. When acting as a director of the subsidiary, he or she must exercise the powers of that role in the interest of the subsidiary (as an internal member of that governing body). Of course, the interests of the parent company and the subsidiary may coincide. They often do. The legal problem arises precisely when they fail to coincide. It is at that moment that the dual role reveals its potential for conflict.
Agency theory helps us understand this difficulty. In an isolated company, the classic conflict pits directors against shareholders. In corporate groups, the problem becomes more complex because a decision may simultaneously involve the interests of the subsidiary, the parent company, other companies within the group, and what is presented as the organization’s overall interest.
Hopt4 draws attention to this characteristic. A decision may be detrimental to a subsidiary and, at the same time, advantageous to the parent company or to another company in the group. It is precisely this possibility of transferring benefits and sacrifices within the corporate structure that makes group agency problems more complex.
Therefore, the existence of common managers is not legally neutral. Nor is it, in and of itself, irregular. Its significance depends on something else. It is necessary to ask about the manner in which the manager acts, where decisions are actually made, and which organizational structure exercises authority over the manager’s actions.
4. The parent company’s will can influence the subsidiary in different ways
It is possible to propose an analytical distinction between organic influence and extra-organic influence. In the former, the parent company uses the corporate mechanisms provided for by law. It votes. It elects directors. It participates in shareholders’ meetings. It approves matters within its purview. It sets general guidelines through the legally appropriate channels (the analysis of the formation of corporate will). The subsidiary’s managers receive these guidelines and, within the powers granted to them by law, make the necessary managerial decisions. The legal chain in this process remains identifiable: parent company, corporate resolution, management, execution. The situation changes when the parent company’s structure begins to directly issue decisions that fall (or should fall) within the subsidiary’s administrative sphere. This can occur when managers of the parent company issue orders directly to the subsidiary’s executives or employees. It may manifest in the establishment of parallel chains of command (characterizing extra-organizational instructions). It may also be evident in the direct assumption of functions related to operational oversight, risk management, or project implementation. In this scenario, the subsidiary runs the risk of remaining autonomous only in a formal sense. If its managers cease to function as true decision-making centers and begin to act predominantly as executors of decisions made in another organizational center, the subsidiary’s legal structure no longer fully corresponds to the economic structure of command.
An important caveat must be added, however.
The parent company’s legally relevant actions do not occur solely outside the subsidiary’s governing bodies. It is also possible for material involvement to take place through the formally constituted governing bodies themselves. This is why the most significant distinction is not simply between organic and extra-organic. The distinction also lies between corporate influence and material participation in the subsidiary’s activities.
5. Going further
One can imagine a spectrum. At one end is the controlling shareholder who exercises only the prerogatives inherent to his or her corporate position. As mentioned, he or she votes, elects directors, approves transactions submitted to the shareholders’ meeting, and monitors the company’s performance. At the other end is the party that directly manages a specific operation. It makes decisions, supervises, controls risks, establishes procedures, imposes technical solutions, determines investments, oversees execution, and continually interferes in operational decisions.
Between these two extremes lies a vast intermediate zone. It is in this zone that the problem lies. Corporate control, by definition, involves influence. Therefore, the existence of influence cannot be sufficient to automatically make the parent company responsible for all of the subsidiary’s activities. At the same time, it would be artificial to argue that the parent company can never participate in the activity simply because it is not formally listed as its operator. The question must be reframed. One should not ask only who the controlling shareholder is. One must ask who materially participates in the activity. The difference is decisive.
The parent company’s liability, when it exists, need not result from an automatic transfer of the subsidiary’s acts. It may result from the parent company’s own actions. In this case, the legal personality of both entities is preserved. There is no logical need to assert that the parent company and the subsidiary are the same entity (nor to apply the doctrine of piercing the corporate veil). The reasoning can be simpler and, at the same time, more methodical. If two distinct legal entities are responsible for the activity causing environmental degradation, each is liable on its own grounds, jointly and severally to the victims, without prejudice to internal apportionment in any recourse action.
6. The environmental problem makes this distinction particularly evident
Brazilian environmental law provides a particularly fertile ground for this reflection. Article 3, IV, of Law 6.938/1981 defines a polluter as any individual or legal entity, public or private, directly or indirectly responsible for an activity causing environmental degradation. Article 14, paragraph 1, establishes strict liability—regardless of fault—for the remediation of damages caused to the environment and to third parties affected by the activity. This legislative choice is significant. The provision does not refer solely to the owner, formal operator, or holder of a specific license. It refers to those directly or indirectly responsible for the activity. This shifts the analysis from form to function.
The issue then becomes identifying which parties are legally connected to the activity causing the degradation.
This concept does not, of course, mean that any economic relationship with the activity gives rise to liability.
Being a shareholder or controlling party is not enough. Belonging to the same group is not enough. Receiving dividends is not enough. Strict liability eliminates the need to prove fault. It does not, however, eliminate the need to demonstrate the causal link. It is necessary to establish why a particular activity can be legally attributed to that party.5
In the context of corporate groups, interference in administration, supervision, or risk management may serve as a basis for attributing the activity to the controlling entity. This is not, however, an indispensable requirement: other forms of connection, such as financing and economic benefit, must be assessed in light of the totality of circumstances, without resorting to automatic conclusions.
Brazilian environmental case law has developed a broad concept of an “indirect polluter” precisely because different forms of conduct can link a party to environmental degradation (we refer here, in particular, to the body of case law developed following the well-known Manguezais case6). Liability may arise from an action, a legally relevant omission, financing, tolerance, the creation or maintenance of risk, active participation, or a legally relevant benefit derived from the activity. The key is not to turn any of these categories into an automatic formula for liability. The breadth of the concept of “polluter” requires careful analysis.
In the Mariana case, the High Court, applying Brazilian law, recognized BHP’s strict environmental liability and its liability based on fault, but dismissed the claim based solely on the sole paragraph of Article 116 and Article 117 of the Brazilian Corporations Law. The distinction is decisive: corporate categories help us understand the exercise of power, while liability toward victims requires its own legal basis.
7. Attribution of the Activity and Causality of the Damage
Perhaps one of the greatest sources of confusion in this debate lies in the undifferentiated use of the term “causality.” It is helpful to distinguish between two issues. The first is the link of attribution between the party and the activity. The second is the causal link between the activity and the harm. In the first instance, the question is why a particular person can be held liable for the activity. This is where elements such as control over the activity, direct participation, supervision, the creation or management of risks, financing, and other legally relevant forms of connection come into play. In the second instance, the question is whether that activity caused the harm for which compensation is sought. These are distinct issues.
It is not necessarily required to demonstrate that a specific, individual order from the parent company constituted the immediate physical cause of each harmful result. What must be demonstrated, first and foremost, is that the parent company’s conduct made it liable for the activity that forms part of the causal chain. After that, the link between the activity and the environmental degradation is examined. This method preserves two equally important requirements. It avoids automatic liability based solely on membership in the group. And it prevents the use of separate legal personality as a shield in the face of effectively demonstrated material participation.
8. Corporate Groups and the Inadequacy of Binary Categories
Much of the difficulty arises because the law tends to seek binary answers to gradual organizational phenomena. A party either controls or does not control. It either manages or does not manage. It is either a shareholder or an agent. It acts either organically or extra-organically. Corporate groups challenge these rigid dichotomies. Reality may present varying degrees of centralization. A parent company may limit itself to general governance policies. It may set financial targets. It may centralize certain administrative functions. It may participate in risk management. It may share teams. It may require prior approval for certain investments. It may oversee specific projects. It may interfere in day-to-day operations.
Legal consequences cannot be derived solely from the label used by the parties to describe their own organization. It is necessary to observe the manner in which control is exercised. The closer the parent company gets to operational decision-making, the concrete management of risk, and the day-to-day supervision of activities, the more difficult it becomes to describe it as a party entirely external to the subsidiary’s operations. This reasoning does not negate the asset separation of the companies in the group. In fact, it lends credibility to that autonomy. If two companies are distinct legal entities, it is necessary to precisely identify the acts attributable to each one. What does not seem consistent is to simultaneously assert that the parent company actually performs administrative and operational functions and that, for liability purposes, all such actions must be legally attributed solely to the subsidiary.
9. The Subsidiary’s Autonomy Must Be Real—Concluding Remarks
This discussion has implications for both liability and governance. Separate legal personality remains intact, but it does not preclude the parent company’s own liability when its legally relevant connection to the harmful activity is demonstrated. This does not imply absolute economic independence. A subsidiary, by definition, may be subject to control. But control should not mean the complete undermining of its governing bodies. The subsidiary’s board of directors must function as the subsidiary’s board. Its directors must exercise the powers inherent to the directors of that legal entity. Its managers must make decisions while considering their duties toward the company they manage.
Therefore, the greater the group’s administrative integration, the greater the concern must be with mechanisms capable of identifying the capacity in which each governance agent acts. The same person may perform different functions in different companies. The problem does not necessarily lie in the accumulation of roles. It lies in the lack of distinction. When it is no longer possible to determine whether someone made a decision as a director of the parent company or the subsidiary, this is a sign that the organizational structure may have gone beyond simple corporate coordination. The “two masters” dilemma then ceases to be a metaphor. It becomes a problem of legal attribution.
- OLIVEIRA, Fabrício de Souza. Por que pesquisar sobre Teoria da Agência? Migalhas de Direito das Organizações, 1 jul. 2025 and OLIVEIRA, Fabrício de Souza. O problema do controle na Lei das S.A. Migalhas de Direito das Organizações, 15 ago. 2025.
- HOPT, Klaus J. Groups of Companies: A Comparative Study on the Economics, Law and Regulation of Corporate Groups. ECGI Law Working Paper n. 286, 2015.
- “Drawing together the evidence on this issue, there are two elements of the test for a controlling shareholder as defined by Article 116. Element (a) concerns shareholder rights that permanently assure the individual or group a majority of votes in resolutions of general meetings and the power to elect a majority of the corporation’s managers. This element is satisfied based on the facts of this case by the Shareholders’ Agreement. Although the parties to the Shareholders’ Agreement were Vale and BHP Brasil, indirect control was exercised by the BHP Group through its corporate chain. Subpart (b) is satisfied based on the facts (irrespective of any presumption) by the exercise of power as explained earlier in this judgment in relation to the Environmental Law claim.” In the judgment in the case of Municipality of Mariana v. BHP.
- HOPT, Klaus J. Groups of Companies: A Comparative Study on the Economics, Law and Regulation of Corporate Groups. ECGI Law Working Paper n. 286, 2015.
- “BHP’s position is that the above evidence could amount to no more than establishing that they held, and exercised, controlling shareholder power (if—which they dispute—BHP exercised controlling shareholder power alone). I reject that argument. It is recognized that controlling shareholder power could be exercised simply through voting at shareholder meetings on high-level matters, such as strategic decisions, executive compensation, and dividends. If limited to such matters, it is unlikely that, without more, it would give rise to liability for the company’s activities. However, controlling shareholder power could also be exercised at a more granular level with respect to the company’s detailed business decisions and operations. The exercise of such authority could give rise to liability for the company’s activities.” In the judgment in the case of Municipality of Mariana v. BHP. Par. 449. “Third, BHP used its powers under the SSA to exercise control over Samarco. BHP and Vale’s membership on the committees and subcommittees established by the Samarco Board ensured that BHP, through BHP Iron Ore and the Iron Ore Brazil team, was involved in Samarco’s activities at every level, from strategic decisions and dividend distributions to detailed operational matters.” In the judgment in the case of Município de Mariana v. BHP.
- (STJ - REsp: 650728 SC 2003/0221786-0, Reporting Justice: Justice HERMAN BENJAMIN, Date of Ruling: 10/23/2007, T2 - SECOND PANEL, Date of Publication: DJe 12/02/2009).