Brazil has a new legal framework for startups

You’re reading The Brazilian Report’s weekly tech roundup, a digest of the most important news on technology and innovation in Brazil. This week’s topics: Brazil’s new legal framework for startups; news from data protection regulators, and the electric car market in Brazil.

What changes with Brazil’s new legal framework for startups

President Jair Bolsonaro submitted the federal government’s project for a legal framework for startups, tacking provisions on to a bill currently pending Congress. Now, the sector expects an improved business environment and more legal safeguards for entrepreneurs and investors.

What are the main changes? The bill defines startups as “newly-created or newly-operational companies with annual revenues of up to BRL 16 million [USD 2.85 million], with their operations focused on innovative business models, products or services.”

• The bill creates a new kind of company, the “Simplified Corporation.” This societary structure would be more comprehensive than limited-liability companies, but cheaper than forming a corporation;
• Startups will have to comply with fewer requirements to join simplified tax regimes;

• Government entities can create exclusive public bidding processes for innovation-focused companies, in order to foster the sector;
• The bill introduces the possibility of companies offering stock options to employees.

New investment rules. The government’s bill drafts new rules for investing in startups. For instance, it will be up to the Brazilian Securities Commission (CVM) to establish easier requirements to go public for companies whose yearly gross revenues are lower than BRL 500 million.

• The CVM would also be responsible for defining rules on angel investments. Under the new law, the contracts could be extended from five to seven years and would allow both parties to define a periodic payout for investors or the conversion of the investment into a stake in the company.
• There will be changes in startup investors’ tax rules, as well as protecting their net worth from startups’ debts.

Reaction. Sector representatives see the proposal as progress toward a better business environment. In an emailed statement to The Brazilian Report, José Muritiba, an executive director at the Brazilian Association of Startups, praised the bill as a “welcome first step.”

• In his view, defining the innovative business model was important...