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Articles 10/03/2021

Startups, Economic Liberty and Brazilian Entrepreneurialism: the new legal landmark and the important impulse for a more modern business environment in the country

*Leonardo Barém Leite

Entrepreneurialism is as natural as it is traditional in Brazil and is becoming ever more a necessity – a means towards our attaining a more prolific, bigger and better company presence.

Frequently arrive in the Country waves of investments from international investors perceiving the enormous business potential and the profits to be made here. And many of these projects seek out business ventures created and overseen by our business people and executives.

The new decade initiated in 2021 shall certainly be that of a new phase of large-sized investments, and the formation of much business that, if well planned and structured, could generate extraordinary results.

Joint Ventures, as well as the so-called Mergers and Acquisitions shall reflect all the more the great quantity of quality local projects and the perception that the Country is enormous and that there is an infinity of opportunities being born every day.

The principal focus that presents itself (initially) appears to be, exactly, the formatting and the implementing of quality and sustainable business, adequate to the Brazilian model and that takes advantage of the primary opportunities.

It has been known for some time that the average Brazilian likes being his own boss and that the growing difficulties to obtaining and maintaining the “traditional job” often lead people to entrepreneurialism.

Should courage, good ideas and talent not be lacking, the bottlenecks appear to be particularly concentrated in the correct organization of the company and in the Brazil cost, the antiquated legal framework and in the absence of real options for the financing of small and start up business ventures (including for reason of the necessity of guarantees and credit history). Happily, several legislative novelties appear to present a light at the end of the tunnel that should be taken advantage of.

We live in the “Country of the Future” and the land of opportunity, in terms of territory, population (workforce and consumer market) and gigantic natural resources, but with laws and a legal system that really do not help.

Within this context, identifying and taking advantage of ideas, situations and promising chances of good business ventures – transforming dreams into business projects – is almost a national obligation.

In fact, the basis of the Brazilian business law (tax as well as labor, for example) as well as the governmental machine are inefficient and antiquated, in addition to the general treatment of all the same way; this generates high cost, exaggerated complexity and lack of competiveness.

We should pressure the authorities for greater incentives, reduction of costs and assistance, but we have to face the reality of also constructing projects that are more secure and interesting.

The Land of Opportunity has also been the land of crises, which on one side teaches resilience and the necessity of reinvention of oneself at all times, and on the other does not allow for dreams to become sustainable and winning reality. We have to overcome this dichotomy.

Heavy taxation (and the complexity to the system that often times hampers more than the tax itself), interest rates, bureaucracy, the lack of real incentive, difficult access to the judiciary, and excess of regulation and bureaucracy – in addition to Brazil cost as a whole – must change. Brazil must grow and become stronger, but we must work hard for this.

The context is involuted and dense but in recent year certain governmental and legislative efforts have come to fruition, such as labor reform, the law of economic liberty and, most recently, the legal landmark of startups.

The want to reduce the size of the State (with privatizations, partnerships and concessions) and its incapacity to afford the necessary investment in infrastructure, for example, shall attract new projects and companies to Brazil more and more.

This reality and the advances that have been made, together with the growing consensus that tax simplification is all important, and that the capital market and the policy of facilitating risk investments should be incentivized, could lead our Country into a new phase of entrepreneurship – and greater attraction of investment.

The term startup has become to be associated by some as almost synonymous of a project necessarily tied to innovative solutions, highlighted basically by technology (applications, software, the Internet, etc.), which in fact perhaps corresponds to the larger part of the projects but in truth only applies to all initial business projects (generally small sized).

The small and mid-sized companies, which generally start as super small, are the economic bases of the majority of countries, which is the case for Brazil as well. Many of these companies start out as startups.     

Entrepreneurialism is growing and along the same lines is angel investment as well as crowdfunding, demonstrating increased general confidence in the model, in spite of the risks (including juridical) and costs still being high.

Bovespa (now B3) attempted on various occasions to create and foment a local access market, with several very interesting projects that unfortunately did not take hold, either for reason of their cost or for the complexity and bureaucracy involved.

The average Brazilian entrepreneur, especially he that has a more solid know-how of business and the market, that conducts research and prepares for the projects, having at least a minimum understanding of management and corporate governance, certainly has better chances. Especially if he relies on specialized legal support from the onset (sometime even before finding the partner for the first Articles of Association).

The examples of business ventures that were not properly thought out and poorly structured as well as companies that are badly organized and detailed and that rapidly fail are innumerous – and always leave a footprint (and losses).

Brazil should assume its propensity for entrepreneurship and learn to create and foment new business ventures and projects. Equally, it should encourage more the necessity of structuring these incentives.

Treating small and startup companies, even without solid grounding and resources and structure, in the same way as those that are larger sized and robust, applying the same juridical rigor and the same costs, is practically to deny them the opportunity to break the wave.

Our Country must perceive that it needs to the assist the entrepreneur more, and it needs to learn to seek out specialist assistance from the onset.

To modify the entire Brazilian legal system (including the Judiciary and its peculiarities) would certainly take a considerable amount of time, and the economy cannot wait; instigating the revolution with a few emergency (legislative) projects would be an important kick start.

Brazil already has a certain history of startups that achieved success in their maturity, with a number of these projects listed on stock exchanges and many others receiving investment fund backing. Indeed we have unicorns as well, demonstrating a dream well-structured and managed is possible.

Within this context, most recently, the pairing of law of economic liberty and the legal landmark of startups deserves our attention, generating an extra dose of optimism.

Economic Liberty is more programmatic than effective but has certainly resulted in considerable advances, such as the reduction of bureaucracy and incrementation in the use of technology in interaction with the authorities (provoked also by the pandemic), as well as incentivizing entrepreneurship (via the cited legal landmark). These are important initiatives that together should become commonplace reality.

The year 2020 brought about the closing of doors of many companies, but Commercial Registry statistics all told demonstrate that a larger number of companies were created (with positive cash flow and growing), by way of comparison. This actuality presents us with the urgent necessity to handle new projects well so that they grow and develop.

Juridical support adequate for the entrepreneur, via corporate lawyers properly qualified, trained, experienced and dedicated to all aspects of the law related to companies and that recognize the main risks and the possible means of addressing them, is ever more necessary.

The new law has not yet been presented in its final form but should already be commemorated as its essence is exactly that of facilitating projects and entrepreneurship, reducing bureaucracy and exigencies, simplifying procedures and effectively assisting the new companies that we so need. These are but some of the aspects that a well-prepared lawyer could much accommodate.

Crises come and go and up to a certain point we become accustomed to them. We have learned that we must muster courage and resilience in these moments so as to take advantage of the opportunities that arise with them.

Almeida Advogados is a modern and youthful law firm, which over the course of its 20 years of existence has assisted hundreds of excellent projects, many of which were extremely successful. And the firm has at its soul innovation, creativity, new business and entrepreneurship.

Our team of partners is dynamic, multidisciplined and experienced, highly qualified and comprised of professionals trained internationally – prepared to assist entrepreneurs of all ports, sectors and origins, helping to identify risks, take advantage of opportunities and structure business in the most secure and sustainable way.

Corporate and contractual aspects, running the gambit from the creation of the company, encompassing corporate governance and Environmental, Social, and Governance – ESG, to the structuring of the business venture and its operation, as well as the obtaining of approvals and licenses, many times preparing startups for investment and for M&A operations, as well as all other aspects of Corporate Law, are handled by the firm for those entrepreneurs requiring due attention from the moment of the drafting of the business plan. 

The Country has much to grow yet, as well as crises and obstacles to overcome – with earnestness and much work. In the context of the uniting of efforts may the best projects win!

*Leonardo Barém Leite is a partner of the law firm Almeida Advogados, specializing in Business Law, Corporate Law, Contracts, M&A, Joint Ventures, Capital Markets, Investment Funds, Corporate Governance, Foreign Investment, Family Office and Wealth Management, Risk Identification and Management, Business Expansion Abroad, Infrastructure, Complex Business Contracts in general, Intellectual Property, e-commerce and Technology, Ethics and compliance, Social Responsibility and the Third Sector.

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