The Brazilian Federal Senate is currently reviewing Bill No. 252/2023 (“PLC 252/23“). The proposal, aiming to amend Complementary Law No. 182/2021 (“Startup Legal Framework“), to introduce the Share Capital Convertible Agreement (“SCCA“), a novel investment option to enrich national Startup investment ecosystem.

Nowadays, Brazilian investors predominantly utilize Convertible Loans as the main method of investing in Startups. However, this investment model proves inefficient in certain cases for two main reasons. Firstly, determining the valuation of early-stage Startups poses difficulties. Secondly, the debt nature of Convertible Loans may have tax and/or accounting implications to the Startup and/or investor.

The SCCA seeks to align Brazil with international best practices, drawing inspiration from the Simple Agreement for Future Equity (“SAFE“), a widely used instrument by foreign investors. The SCCA was formatted to allow the investors to inject capital to the Startup in exchange for a future commitment to issue shares, promising alternative to the existing local investment landscape.

Sophisticated domestic investors currently prefer executing SAFE agreements governed by foreign jurisdictions when investing in Brazilian companies. The proposed SCCA is welcome as it promises to provide greater legal certainty and transparency for both investors and startups, fostering a business environment conductive to mutual understanding.

Bill No. 252/23 is now advancing toward for a vote in the Senate plenary.