Economies worldwide are responding to the ever-evolving and fast-paced transformations generated by technological developments. It is clear that consumers are increasingly demanding a less complex world in which they can carry out formally arduous tasks simply by pressing a button on their mobile phone or using face recognition technology.
The reality is that simple legal transactions and contracts such as purchasing a product, setting up a regular delivery or settling a consumer complaint proceeding can often be completed at the click of a button.
However, if on the one hand technology seems to threaten professionals whose work involves simple or repetitive transactions, on the other, technology has not made significant advances in more complex matters (which often have their own peculiarities), such as investment rounds, establishing the rules that will govern the relationship between business partners or resolving complex lawsuits. As such little progress will arguably be seen at the so-called 'high end' of legal work – at least in the short term.
There are a growing number of investment rounds in start-ups based on Brazilian versions of Silicon Valley contracts that unfortunately have not benefited from the critical eye and practical expertise of experienced lawyers who can examine the agreement under Brazilian law, which can differ significantly from the common law system found in the United States.
On examination, many of the provisions in these contracts are incompatible with Brazilian law, unenforceable in Brazil or difficult – and time-consuming – to enforce. For example, in Brazil, the following transactions and situations are often more nuanced and thus cannot be resolved simply by pressing a button:
- provisions establishing a start-up's obligations (eg, transforming a limited liability company into a corporation) which provide no details on the future corporation's bylaws or shareholders' agreement;
- an agreement on stock options which contains no clauses to ensure a smooth transfer on exercise of the option; and
- anti-dilution provisions that do not conform to Brazilian law; and
- the failure to provide for:
- penalties on breach;
- measurable indicators of a shareholders' contributions to the success of an enterprise; or
- future adjustments in a shareholder's relative interests in a business.
Further, new funding rounds can be suspended because investors are unsure of the rights and obligations of shareholders from earlier rounds, aggravating the risk that the business will fail due to a lack of funds.
A good way to avoid such a situation is involve experienced local lawyers who can help to anticipate problems and find ways to address risks that threaten to hinder a business's growth.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.