Start-up’s and Innovative Entrepreneurship Legal Landmark

On June 2nd, 2021, Brazil published the Complementary Law No. 182/2021, which establishes the Legal Landmark for Startups and Innovative Entrepreneurship (“Legal Landmark”) and presents measures to foster the country’s business environment through the flexibilization of regulatory requirements.

According to the Special Secretary of the Special Secretariat for Productivity, Employment, and Competitiveness at the Ministry of Economy of Brazil, the new law creates a favorable environment for startups to emerge and to growth, through business environment improvement, simplification, reduction of costs, increase of legal security and expansion of investment in these companies.

With this aim, the Legal Landmark compiles provisions about startups’ legal regime, investment modalities, regulatory sandbox, amendments to the Brazilian Business Corporation Act, and other provisions.

Find below a list of the main points brought up by the Legal Landmark, which will come into force in 90 days from its publication:

  1. Startup Legal Concept: 

The Legal Landmark establishes that organizations, newly constituted or in a recent operation, whose operation is characterized by innovation applied to the business model or products or services, can be characterized as startups.

Among startups, the following categories are eligible for the special treatment created by the Legal Landmark: sole proprietorship, limited liability sole proprietorship (EIRELI, in Portuguese), companies, cooperative societies, and general partnership that meet the following cumulative requirements.

(i) have gross revenue of up to R$16 million in the previous calendar year or, if with the activity of less than one year, up to a monthly average of R$1,333,334.00;

(ii) do not exceed ten (10) years of enrollment in the National Registry of Legal Entities; and

(iii) have declared, in their corporate acts, that they use innovative business models or are part of the “Inova Simples” tax regime.

  1. Investments in Startups:

The Legal Landmark provides that “angel investors” can be a natural person or a legal entity and that their investment may or may not result in equity participation in the startup.

The investor whose contribution does not constitutes equity:

(i) will not be considered a startup’s partner or shareholder;

(ii) will not have the right to manage or vote in the startup’s management, being safeguarded, however, the right to participate in the deliberations in a strictly advisory character and the right to examine the startup’s financial books; and

(iii) in general, will not be responsible for any debt of the startup, including in cases of judicial reorganization and disregard of legal entity.

  1. Regulatory Sandbox:

The Legal Landmark also establishes the “regulatory sandbox”, consisting of an experimental regulatory environment that simplifies conditions for startups to receive authorization to develop innovative business models and to test experimental techniques and technologies, through a facilitated and less bureaucratic procedure.

For this purpose, the agencies and entities of sectorial regulation may waive the incidence of regulatory rules under their competence, to simplify their procedures for startups.

  1. Facilitated Bidding:

The Legal Landmark establishes a special and simplified public bidding modality. Through this modality, Public Administration may, for example, specify the scope of the bid in a more restricted manner and exempt, with justification, the qualification and tax regularity documentation required by Law No. 8.666/1993, as well as the required guarantee for contracting.

  1. Brazilian Business Corporation Act Amendments:

The Legal Landmark also amends the Brazilian Business Corporation Act to simplify the operation of corporations. Among the changes are:

(i) authorization for the company board to be composed of only 1 (one) member;

(ii) permission to dividend distribution as decided by the general meeting, in case of absence of express prohibition under the corporate bylaws, without the need to respect the mandatory dividend, as long as not prejudicing the preferred shareholders right to receive fixed or minimum dividends to which they have priority; and

(iii) easier conditions for the access of smaller companies to the capital market, through regulation by the securities commission.

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