Publications - 23/11/20

Brazilian Legal Framework for Startups and Innovative Entrepreneurship: Understand the main aspects of draft Bill nº 249/2020

On October 20, the draft Complementary Bill nº 249/2020 (PLP 249/20) was sent to the Brazilian National Congress, for consideration and potential approval by the Plenary. The Ministry of Science, Technology and Innovations in partnership with the Ministry of Economy signed the mentioned project, which proposes the establishment of the Legal Framework for Startups and Innovative Entrepreneurship that was presented to Congress by the Executive Branch.

According to the bill, startups are defined as business organizations, created or in recent operation, whose performance is marked by the innovation on the business model or of the product or services offered. In this sense, the individual entrepreneur, the limited liability company, partnerships (“sociedades empresárias”), and simple companies (“sociedades simples”) are eligible under this scope, as long as they have a gross annual revenue of 16 million reais or a gross monthly  revenue of 1,3 million reais. The company also needs to declare that it has a innovative business model or that it belongs to the special regime Inova Simples (under the terms of article 65-A of the Complementary Law 123/2006). Companies in recent operation are those with up to 6 years of registration in the Cadastro Nacional da Pessoa Jurídica (CNPJ).

The possible new regulation has the potential to facilitate investment in startups, which can be described as companies with great economic potential, with the ability to benefit both the public and private sectors, directly or indirectly, as explained in the letter sent to the Brazilian National Congress, sent by the Executive Branch, document responsible for presenting the project.

The PLP 249/20 presents measures to promote the business environment, to increase the capital offer for investments in innovative entrepreneurship and to discipline the bidding and contracting of innovative solutions by the Brazilian public administration.

In this sense, some of the principles and guidelines that shape the proposed project are (art. 2):

  • Encouraging the creation of favorable environments for innovative entrepreneurship, with legal appreciation for contractual freedom as a premises for promoting investments and increasing the supply of capital directed at innovative initiatives;
  • Improvement of public policies and tools to promote innovative entrepreneurship;
  • Promotion of cooperation and interaction between entities, between the public and private sectors and between companies, as fundamental relationships for shaping the ecosystem of effective innovative entrepreneurship;
  • Incentive to the hiring, by the public administration, of innovative solutions elaborated or developed by startups, recognizing the role of the State in the promotion of innovation and the potential opportunities of economic benefit for the solution of public problems with innovative solutions; and
  • Promotion of the competitiveness of Brazilian companies and the internationalization and attraction of foreign investment.

In order to encourage innovation activities and investments in this type of business, capital contributions made by individuals or legal entities, commonly referred as “investidores anjos” (also known as “smart money”), would not integrate the company´s share capital. The consequence of this regulation is that such investors are not considered partners and are not responsible for the payment of any debts contracted by the company, including in the case of judicial reorganization or bankruptcy.

Another relevant topic is how the hiring by the State shall be conducted. As provided for in the project, the Experimental Regulatory Environment consists in a set of “simplified special conditions so that participating legal entities can receive temporary authorization from the bodies and entities with regulatory competence to develop innovative business models and test experimental techniques and technologies, by complying with the criteria and limits previously established by the regulatory body or entity, by means of a simpler procedure” (art. 9, paragraph 2). There is, therefore, the possibility of creating a special bidding procedure with the objective of stimulating and facilitating the hiring, by the State, of companies with innovative business models or new technologies.

The Public Contract for Innovative Solution (Contrato Público para Solução Inovadora – CPSI) could be signed with a two years term, in the amount up to 1.6 million reais per contract. After the end of this period, the Government would be allowed to renew the contract, without a new bid, for another two years.

Finally, the bill tries to reduce excessive bureaucracy, by dismissing the obligation to publish balance sheets for corporations with gross annual revenue of less than RS 78 million (reais) and that have less than thirty shareholders.

The processing of PLP 249/20 started in the Câmera dos Deputados and is subject to the appreciation by the plenary by the priority procedure.