STARTUPS’ LEGAL LANDMARK

Startups legal landmark

Last Tuesday (5/11/2021), the Chamber of Representatives approved the Complementary Law Project no. 146/2019, popularly known as the Startups’ Legal Landmark and Innovative Entrepreneurship (“Legal Landmark”), which aims to define the rules for the startups’ operation in the country.

Complementary Law Project now follows for presidential approval and it was enthusiastically received by the sector’s players, since it brings, among its aspects, measures to stimulate the creation of innovation companies and establishes incentives for those who intend to invest in the segment.

There are also measures to promote the capital for investment in innovative entrepreneurship, as well as rules for bidding and hiring innovative solutions by the Brazilian public administration.

The approved text defines startups as business or corporate organizations that operate, specifically, in innovation applied to products, services, and business models.

Besides the definition, the project determines that companies that have gross revenues of up to R$16,000,000.00 in the previous year and that are registered in the National Register of Legal Entities for at least 10 years are eligible to be considered as startup. The Legal Landmark determines that the company intending to apply for a startup status must have declared in its articles of association (or amendment) the application of innovative business models for the product generation or services, or, alternatively, it must have been included in the special taxation regime denominated “Inova Simples” (under the terms of art. 65-A of Complementary Law no. 123 of December 14, 2006).

Regarding in particular to the financing, the project provides that the startups will be able to count on with investors’ capital (individual or corporation) that do not effectively participate in the capital stock neither in the executive startups’ board/management, which are defined by the text as “angel investors”. The great advantage for angel investors is that they will not be liable for the startup’s obligations (not even in the case of judicial recovery or labor claims, for example) – except in cases of willful misconduct, fraud, or investment simulation – they will be remunerated to the extent of their contributions, and may also participate in the deliberations in a strictly advisory capacity and have access to accounts, inventory, balance sheets, accounting book and cash flows, which will ensure legal security and therefore reduce the risk involved in this type of relation. 

Still aiming to stimulate the sector, the project allows startups to participate in biddings with the Brazilian public administration, whose purpose is to hire people (individuals or corporations) to develop innovative solutions, with or without technological risk.

Another definition by the Legal Landmark, which aims to boost the startups’ activity, is the hereinafter referred to as regulatory sandbox, which determines the special and simplified conditions for legal entities to receive temporary authorization from the competent authority to develop innovative business models and test experimental techniques and technologies, upon compliance with previously established criteria and limitations, and through a facilitated procedure.

Legal Landmark now follows for presidential approval so that we finally have a definitive version of the regulation.

By Bianca Siciliano de Lima