On the 1st of June, the federal government sanctioned Complementary Law No.182 (the “Law”). In a similar vein to previous legislation (as discussed here: Improving Brazil’s Business Environment (cms-lawnow.com)), the aim is to improve the Brazilian business environment. Unlike previous legislation, the Law targets and creates a legal framework for a specific type of business, namely start-ups. The “Legal Framework for Start-ups and Innovative Entrepreneurship” recognises that start-ups have a different and particular set of requirements as they grow, and aims to provide an appropriate legal framework to support them.
How is a startup defined?
Complementary Law No. 182 defines a start-up as a company engaged in innovation, through its business model or the products / services it offers, with annual revenues of up to R$16m (c. US $3m). Companies also need to have been founded less than 10 years ago, meaning already established companies could benefit.
The Law aims to create a simplified and agile framework for start-ups in Brazil, enabling them to grow and work outside of regulations that may apply to more established companies.
The Law seeks to achieve this by setting out a clear, business-friendly framework for investors, including by providing that angel investors will no longer be accountable for debts accrued by the start-up, but will still able to take a share of the profits. The Law defines angel investors as those investors, not having executive functions or voting rights, but who are remunerated on the basis of their contribution.
New legislative tools
Start-ups will also be given the opportunity to participate in certain public procurement programs and tenders through the creation of a separate process, which aims to select providers of innovative technological solutions by means of a Public Contract for Innovative Solutions (“PCIS”). PCISs will have a maximum duration of 12 months, with the possibility of renewal for an further 12 months. These contracts will also be subject to a specific performance evaluation framework to be detailed for each tender.
Sector regulatory bodies are authorized by the Law to implement regulatory sandboxes, suspending the application of certain regulations for a period. Regulatory sandboxes may be set up through collaboration between regulators, and will specify specific regulations to be suspended, duration of the program, and eligibility criteria for start-ups. With this, the Law also seeks to simplify bureaucracy.
Another change implemented by the Law is a reduction of the minimum required number of directors for a corporation (S.A.), from at least two, to a minimum of one. This has been implemented by an amendment to the Brazilian Corporation Act (Law No. 6,404/1976). As a result this will apply not only to start-ups, but to corporations in general.
How will this help?
The Law has the potential to help start-ups more quickly gain scale through access to certain public procurement processes and facilitating the attraction of investment. Overall, the Law aims to foster innovation and create a better environment for the emergence and sustained growth of startups in Brazil.
The Law has introduced novel mechanisms, creating a simplified testing ground for start-ups, while simultaneously providing comfort to angel investors. The creation of a new form of public contract, awarded through a specific tender process, is an opportunity for the public administration to foster innovation.
CMS’ equIP programme is dedicated supporting start-ups to scale up. For further information see: CMS equIP | Helping Start-ups scale and Helping Start-ups scale (cms.law).