Brazil: Brazil Approves Legal Framework On Angel Investing

Last Updated: 18 January 2017
Article by Tiago Soares De Aquino and Erickson A. Santana De Oliveira
Most Read Contributor in Brazil, July 2017

Complementary Law No. 155, of October 27, 2016, amends the so-called Small Business Act (Complementary Law No. 123, of December 14, 2006) to put in place project "Crescer sem Medo" ("Growing without Fear", in a free translation). The project reforms the simplified tax system known as "Simples Nacional" and provides for a new regime for investments in Brazilian startups to be carried out by angel investors, which will enter into effect on January 1st, 2017.

According to the new regime, startup companies may receive capital contributions ("special contributions") from individuals, companies and investment funds by means of a "participation agreement", which shall specify the purpose of the contribution and have a maximum term of seven years. The law sets forth that said special contribution shall not be considered (i) income of the startup for the purpose of qualifying for the Simples Nacional1; nor (ii) part of startup's capital stock. It is not clear whether the special contribution should be considered liability or net equity in the startup's balance sheet. Also, taking into consideration the company's obligations to pay a portion of its profits to the angel investor as well as to redeem his contribution, as further explained hereto, we understand that the special contribution shall not be considered taxable income.

The law establishes that angel investors shall not be regarded equity holders and will not be liable for any debts of the startup, even in case of judicial reorganization or disregard of the legal entity. On the other hand, angel investors cannot hold any political rights or any rights to take part in the management of the startup.

Distribution of profits to the angel investor is limited to a 5-year term from the contribution date and shall not exceed 50% (fifty percent) of startup's profit in each fiscal year.

Angel investors may redeem their contribution after a minimum term of two years following the contribution date (parties may increase this term). The cash redemption value shall be based on a balance sheet specially drawn up for that purpose and the amount will be limited to the contribution value adjusted for inflation.

The special contributions may be assigned by the original angel investors to third parties. If the assignee is not a shareholder, the assignment requires the prior approval of company's shareholders2, unless stated otherwise in the participation agreement. If the assignee is also a shareholder of the invested company, no prior approval of the other shareholders will be required.

An important aspect of the new regulation is that the angel investors will have a right of first refusal ("ROFR") in case the shareholders decide to sell the company.

Alongside with the ROFR, the new regime also grants angel investors tag-along rights ("TAR") to be triggered by the sale of the company. In this case, the angel investor would have the right to join the deal and sell his special contribution at the same terms and conditions offered to the shareholders.

The law fails to indicate the percentage of the sale of shares that will trigger the ROFR and/or the TAR. It also leads to the conclusion that the ROFR and/or the TAR apply not only when shares are acquired by third parties, but also by current shareholders. At least with respect to the percentage required to trigger the ROFR and/or TAR, the mention to "sale of the enterprise" leads to the conclusion that a sale of a controlling interest has to take place in order to trigger such rights. In our opinion, the key element is the transfer of the effective control, regardless if the controlling shareholder owns the majority of the shares.

Although the new law does not mention any corporate approval required for companies willing to enter into participation agreements with angel investors, we believe that the execution should be subject to prior approval of the shareholders because (i) the participation agreement would limit their own return on investment; and (ii) ROFR and TAR would affect their rights to sell their shares.

Furthermore, the new law does not indicate if the existence of the participation agreement should be mentioned in company's articles of association. This measure should be adopted in the future, since it is important so as to make public to third parties that a ROFR and a TAR are effective.

Other negative aspect of the new regime is that it does not state shareholders' and managers' fiduciary duties to the angel investors, such as disclosing business information and financial data to angel investors so that they can monitor how the special contribution resources are being employed. Angel investors are not equity holders and thus should have a proper regime able to protect their interests in the startups. In the absence of specific rules in this regard, the general rules on controlling shareholders' and managers' liabilities before third parties shall apply. In any case, the participation agreement should provide for detailed mechanisms in order to avoid any doubts.

Finally, the law is uncertain whether the results of each fiscal year distributed to angel investors are included or not in the tax exemption applicable to dividends paid by companies3.

The regulation of angel investing in startups shall be well received by the market, but there are aspects of the new legal framework to be clarified by Brazilian courts or by amendments to the law. In the meantime, parties shall seek efficient legal assistance so as to overcome the legal loopholes with adequate provisions in the participation agreement. 


1 In broad terms, companies the annual gross income of which does not exceed R$4.8 million can adopt the Simples Nacional regime .

2 The law does not mention the quorum for such resolution. We understand that it can be taken by simple majority, unless stated otherwise in the startup's corporate documents.

3 Dividends paid by companies are exempted from income tax according to article 10 of Law No. 9,249, as of December 26, 1995.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.