Legal Framework for Startups Sanctioned

On June 1st, 2021, the President sanctioned the Complementary Law 182/2021 known as the Legal Framework for Startups. The main goal of the new law is to promote and encourage innovative entrepreneurship in the country, focusing on the advance of startups as a path for economic, social, and environmental development, and on the modernization of the Brazilian business environment. In addition, the new law promotes cooperation and interaction between the public and private sectors, between public entities and private companies, as fundamental relationships for the development of an innovative entrepreneurship ecosystem. 

• startups may receive investments from individuals or legal entities that may or may not result in equity participation in the startup (depending on the investment model chosen by the parties).
   
• startups may also receive resources through companies which have obligations to invest in research, development and innovation arising from grants made by regulatory agencies.
   
• foresees the possibility of experimental regulatory environment programs (the regulatory sandbox) in which agencies with competence in sector regulation, separately or jointly, may set aside norms of their competence so that innovative companies can experiment  innovative business models and test techniques and technologies, with the regulator’s monitoring.
   
• introduced a special type of bidding that enables the Public Administration to hire innovative solutions, with or without technological risk, being up to the bidders to propose different means to solve the problem, and allowing public entities to carry out technological challenges.
   
• considers startups companies whose operations are categorized by innovation applied to the business model, products or services, with gross revenue of up to R$ 16 million in the previous calendar year, with up to 10 years of enrolment in the CNPJ (Tax Federal Registry). 
   
• ratifies forms of investment to raise funds without integralization as part of the corporate capital, such as (i) the option to subscribe or sell a stake; (ii) debentures and convertible loans; (iii) structuring of partnerships; and (iv) angel investment agreements. It also establishes that the investor making investments in these modalities will not have voting rights or management control (unless such investments are converted into effective equity participation). It may, however, participate in the deliberations in an advisory capacity.
   
• the law considers an angel investor to be one who is neither a partner nor has any management or voting rights in the company’s administration, is not liable for any of the company’s obligations, and is remunerated for his contributions. 
   
• it also brings amendments to the Corporations Law (Law 6,404/76) to simplify certain procedures applicable to corporations with annual revenues of less than R$ 78 million; it incorporates in Complementary Law 123/2006 the provisions related to capital contributions made by angel investors in micro and small business; it also allows corporations to have only one Officer (diretor), changing the rule that required the Board o Officers (Diretoria) to be composed of at least two members.

The Legal Framework for Startups will come into force in early September 2021 and should be celebrated as a relevant move towards a more secure legal environment that encourages investment in innovative entrepreneurship.