The Challenge of Legal uncertainty in the Startups Ecosystem

The popularity and development of Startups in Brazil are incentive to those who want to bet on this ecosystem of innovation. Faced with the peculiarities of managing this business model, however, entrepreneurs and investors become aware of the high risks caused by the legal uncertainty of the regulatory environment.

Several countries around the world have specific norms with legal value for such segment. Currently, Startups in Brazil are basically still anchored to the same legislation applied to traditional companies. However, this business model has been increasingly encouraged in the country as a result of its potential for generating wealth and for rapid expansion. The area is gaining attention from managers and legislators, not to mention from experts in Digital Law and Startup Law.

“This is a high-risk business model that demands thorough legal planning to consolidate the Startup, allow project development and attract investors,” emphasizes attorney Guilherme Nagel, founding partner of Sotto Maior & Nagel law firm who is an expert in Startup Law. The office is headquartered in Florianópolis and São Paulo, two of the country’s top startup hubs.

From ideation to development

Florianópolis stands out for having a startup density that is nearly ten times higher than that of the capital of São Paulo, according to data from the Santa Catarina Technology Association (Acate). This is because the city has a startup innovation ecosystem that drives and supports the sector, such as educational and research institutions, accelerators, mutual funds and specialized support professionals. That is why the city is nicknamed the ‘Brazilian Silicon Valley’. The name is in reference to the homonymous region in the United States, home to world powers in the field of technology. The technology sector in Santa Catarina already represents 5.6% of the state’s Gross Domestic Product (GDP) generating $15.5 billion in revenues, according to Acate.

Legal advice is essential during all stages of the business, as it evaluates sector-specific characteristics to ensure entrepreneurs legal certainty and tranquility. “Specialized attorneys have specific legal knowledge in the area that allows entrepreneurs to identify the most relevant decisions from a legal point of view. This is an intrinsic process throughout the constitution of the business model, from conception to the investments,” adds Guilherme, from Sotto Maior & Nagel.

This legal follow-up is imperative due to the constant labor and tax legislation updates such as the particularly noteworthy MPda Economic Freedom (Provisional Measure 881/19), sanctioned on April 30. If approved by the National Congress, it should represent greater legal assurance for the Startup ecosystem. This is because the theme is the foundation of the Declaration of Rights of Economic Freedom, guaranteeing free market and creating mechanisms to reduce the regulatory impact of the state on private enterprise.

General Data Protection Act Compliance

The requirement to comply with the General Data Protection Act, which will go into effect in 2020, is yet another significant change for the Startup ecosystem. By then, public and private all companies that collect personal data to enable navigation on their websites or to provide products and services must meet the requirements. Sotto Maior & Nagel has been advising companies in the sector on how to adapt their systems.

Sotto Maior & Nagel Advogados has a team that is specialized in technology. It offers services and specific solutions for startups, for all stages of a company’s development, such as advice on Digital Law, protection of Intellectual Property rights and analysis and implementation of Data Protection procedures, all in accordance with the current legislation.