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Legal Framework for Startups goes to vote in Congress

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By Fernanda Marques

Presented by the Executive Branch on October 20, for approval by the Chamber of Deputies, the Complementary Bill 249/2020 (PL 249/20) establishes the legal framework for startups and innovative entrepreneurship in Brazil.

PL 249/20 establishes principles and guidelines for the country’s startup ecosystem, therefore aiming to foster the business environment and increase capital for investing in innovation, regulating the bidding and contracting of innovative solutions by the public administration.

In the 3rd article, objective requirements are set for a company to be considered a startup:

  1. have gross annual sales of up to R$ 16 million in the previous calendar year or R$ 1.3 million multiplied by the number of months of activity in the previous calendar year, when under a year;
  2. have up to six years of enrollment in the National Register of Legal Entities (CNPJ); and
  3. meet one of the following requirements, at a minimum: (i) a declaration, in its constitutive or amending act, of using innovative business models; or (ii) falling under the Inova Simples special regime.

In addition, the project determines the instruments for startup investing, which should not be characterized as payment of companies’ social capital, provides for the responsibilities of investors and also establishes the competence of the Securities and Exchange Commission (CVM) to create regulation of startups, with respect to capital contributions made by investment fund investors.

Another relevant aspect of the PL e the creation of so-called “experimental regulatory environment programs”, so that startups develop innovative business models and test experimental techniques and technologies with the government, so that so that a process of reducing the bureaucracy of their systems is built. As a result, public administrations may hire individuals or companies, either separately or by consortium, so they can test innovative solutions developed or under development by startups, with or without technological risk, through a special bidding process, which is provided by the legal project itself.

The measure is an initiative of the Ministries of Economy and Science, Technology and Innovations, which see the project as a way to facilitate and regulate startups operations in the national territory, fostering and giving greater dynamism to innovation in the country.

The legal framework for startups is essential for encouraging and financing innovative entrepreneurship in Brazil, filling a legal gap that could benefit numerous initiatives in the country.

PL 249/20 sent by the Executive joins PLP 146/19, an initiative of the Chamber of Deputies and which was already in progress. Both projects will be discussed and, after approval by the Chamber, will still need to pass through the Senate and, later, the Presidency of the Republic.