After a long period of debate in Congress, the new Brazilian Startups Law (BSL) was published, which impacts Angel Investors, Accelerators, Venture Capital Funds and Corporate Venture vehicles.
We list below 5 main points of attention regarding the new law:
1. Which Companies Qualify as Startups? Organizations, nascent or in activity, that innovate in their business models, products or services offered are classified as startups. They can be Ltd., S/A, cooperative, simple society or individual entrepreneur.
2. Special Treatment. The BSL institutes a special treatment aimed at fostering startups (except S/As) (i) with gross revenue of up to R$16 million or R$1.33 million multiplied by the number of months of activity in the previous year, ( ii) up to 10 years of registration with the CNPJ and that meet certain requirements of art. 4, III, of Complementary Federal Law 182.
3. Legal Instruments for Contribution to Startups. The BSL recognizes as valid documents to implement the investment in startups, without considering the investor as part of the target’s equity (i) stock option agreement, (ii) debenture convertible into shares, ( iii) loan agreement convertible into shares, (iv) partnership agreements (Sociedades em Conta de Participação), (v) angel investor agreement and (vi) other legal instruments that do not establish the investor’s entry into the startup’s equity.
4. Investor Protections Against Startup Liabilities. The BSL provides that the investor who makes investments through the above instruments (i) is not considered a shareholder, will not have the right to manage or vote in the target’s management, and (ii) will not be liable for any debt of the investee, whether labor, civil, tax or other.
5. Compensation of Losses Determined in Investments in Startups (Vetoed). It was vetoed in the presidential sanction of the BSL the provision that would allow the individual investor, for purposes of calculation and payment of capital gain tax, the losses incurred in investment in startups.
There are important points that were left out of the new law, such as the regulation on Stock Options, labor flexibilization and the compensation of losses made in investments in startups with gains for purposes of calculating tax on gains from capital.
Even so, the new Brazilian Startups Law in force as of September 2021 represents yet another advance in the laws that regulate investments in companies in Brazil.