Legal Framework of Startups is sanctioned and enters into force on September 1st, 2021

On June 1st, 2021, Supplementary Law No. 182 was sanctioned, which instituted the ‘Legal Framework for startups and innovative entrepreneurship’. The novelties brought by said law create better conditions for the development and consolidation of startups in the country, also stimulating initiatives for integration between the public and private sectors.

The new Legal Framework provides for some requirements for qualifying a company as a Startup, including: (i) having an annual gross revenue of up to R$16,000,000.00 (sixteen million reais); (ii) not exceed 10 (ten) years of registration in the National Register of Legal Entities (CNPJ); and (iii) that declare, in their articles of incorporation, the use of innovative models or that fall under the special regime Inova Simples – regulated by CGSIM Resolution No. 55, of March 23, 2020.

The Legal Framework provided investors with more possibilities to supply financial resources, without participating in the company’s capital and management. Investments may be made, for example, through subscription rights, call options, debentures and constitution of a special partnership agreement (Sociedade em Conta de Participação) between investor and company. In these cases, the investor will only be considered a partner of the startup after the contribution is converted into an effective equity interest and, since there is no intentional misconduct, fraud or simulation, will not be liable for any debts of the company.

In addition to that, startups may receive funds from companies that have invest obligations in research, development and innovation, which may contribute such obligations by means of equity funds, Equity Investment Funds (FIP), and investment in financing and accelerating startups programs managed by public institutions.

The text of the Legal Framework also brings changes to Supplementary Law No. 123, dated December 14, 2006, regarding investments by also called angel investors, providing for legal arrangements that have already been practiced in startups scenario. In addition to rules relating to conditions for remuneration and conversion of contributions, the law expressly determines that these investors may, even without effectively acting in management, participate in an advisory manner in deliberations, as well as have access to the status of the company’s accounts, balance sheets and cash.

Another innovative solution was to expressly provide for the creation of the “Regulatory Sandbox”, an experimental regulatory environment, where regulatory bodies and agencies of the public administration can ease or remove the incidence of regulations within their respective sphere of competence in order to allow companies to launch products/services with less bureaucracy.

Regarding the participation of startups in biddings, the new law created the possibility of a startups bidding category for public administration, with the objective of promoting innovation in the productive sector and to resolve demands that require a technology solution. A simplified and priority regime for applying for registrations of trademarks and patents was also created with the National Institute of Industrial Property (INPI).

Another very important aspect brought by the Legal Framework was the simplification of Corporations with annual billings lower than BRL 78 million, which may have only one officer, effective the publications provided for in the Corporation Law electronically and replace traditional corporate books by electronic records.

Some tax and labor issues were not addressed by the new law, such as the possibility of using stock options, which will subject to specific legislation.

The new law enters into force on September 1st, 2021.

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