Brazil’s startup legal framework sanctioned and comes into force

RIO DE JANEIRO, BRAZIL – Brazil’s President Jair Bolsonaro, on Tuesday, June 1, sanctioned a bill establishing the Legal Framework for Startups and Innovative Entrepreneurship. The measure aims to foster the creation of innovative companies in their business model, product or service. The legislation was passed by the National Congress on May 11.

According to the new law, which now comes into force, startups are considered to be business or corporate organizations engaged in innovation applied to the business model or the products and services offered.

These companies must have annual gross revenue less than R$16 (US$3.1) million and less than 10 years of enrollment in the National Tax Register of Legal Entities (CNPJ). They must also declare in their articles of incorporation that they use the innovative business model in their activity.

“The sanction of the Legal Framework for Startups is extremely important for the innovative entrepreneurship ecosystem. It legally defines what a startup is, establishes differentiated and positive conditions for them, and provides legal security for entrepreneurs and investors. It also foresees the incentive for large companies, the State and individuals to invest in startups, as a means of fostering innovation in the Brazilian market,” says Saulo Michiles, legal director of Cotidiano Startup Accelerator and vice- president of the Digital Law and Startups Commission of the Brazilian Bar Association in the Federal District (OAB-DF).

Among the novelties of the new law is the creation of the “experimental regulatory environment” (regulatory sandbox), a differentiated regime where a company can launch new experimental products and services with less bureaucracy and greater flexibility in its model.

Another innovation is the provision for the “angel” investor, who is not considered a partner, does not have any management or voting rights in the company’s administration, is not liable for any of the company’s obligations, but is remunerated for his or her contributions.

The text also creates a special form of public bidding to contract startups. Under the measure, governments will be able to hire individuals or legal entities, alone or in consortia, to test innovative solutions they have or will develop, with or without technological risk.

With the bidding result, the Public Contract for Innovative Solution (CPSI) will be closed with the selected startups, with a limited term of 12 months, extendable for an equal period. The maximum amount to be paid to the startups is R$1.6 million (US$310 million) per contract.

Veto

In a statement, the General Secretariat of the Presidency of the Republic said it had vetoed a provision creating a tax waiver that was not part of the original bill. The veto was a request from the Ministry of Economy, since the text lacked an budgetary impact assessment and did not include compensatory measures.

Source: Agência Brasil

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