The Federal Government sanctioned the legal framework for Startups, establishing new legal instruments and definitions that seek to improve the innovation environment in Brazil. It provided mechanisms to facilitate investments and the government procurement of innovative solutions.

The Federal Government sanctioned the legal framework for Startups (Complementary Law n. 182/2021), providing new legal instruments and definitions that seek to improve legal security and foster the development of innovative enterprises. It is also designed to improve the attraction of investments.

The new legal framework defined “Startup companies”, in article 4, as newly established companies (less than 10 years of operation) that present innovative business models or solutions, limited to specific company types, and with annual revenue limited to BRL 16 million (of the previous year-calendar). Additionally, the Startup must state its innovativeness in the company’s bylaws, as defined by the Brazilian Innovation Law (Law n. 10.973/2004), or take part in the “Inova Simples” special regime for Startups.

The framework also established legal instruments to facilitate the attraction of investments for Startups:

  • It provided mechanisms for investing in a Startup without acquiring a stake in the company (article 5), through which an investor is not liable for the company’s debts, although not considered a partner or shareholder (article 8). Such mechanisms will be further regulated by the Securities and Exchange Commission of Brazil (CVM); and
  • It authorized companies with Research, Development and Innovation (RDI) investment obligations under specific regulatory frameworks to invest in Startups (article 9), through (i) innovation Endowment Funds, established under Law n. 13.800/2019; (ii) Private Equity Funds (FIPs, in the Portuguese acronym), specifically Seed Capital FIPs, emerging companies FIPs (FIP-EE, in the Portuguese acronym), and RDI FIPs (FIP-PD&I, in the Portuguese acronym), provided by CVM Instruction n. 578/2016; and (iii) Startup investment programs from state-owned institutions.

The new framework also legally defined the regulatory sandbox, enabling its implementation throughout the Federal Public Administration (article 11); and provided a special government procurement framework for innovative solutions, which are to be contracted by the Federal Public Administration through public bids and the establishment of “Innovative Solution Public Contracts” (CPSI, in the Portuguese acronym) (articles 12 to 15).

The complementary law comes into force on August 30.