The Economic Freedom Act (Lei da Liberdade Econômica)

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The Economic Freedom Act (Lei da Liberdade Econômica), officially known as Federal Law No. 13,874, is legislation that reduces government intervention in private business operations in Brazil.
What are the main aims and objectives?

The Act's main objectives include reducing bureaucracy for Brazilian investors, establishing free market guarantees, and providing greater legal certainty for Brazil's business environment. It seeks to foster entrepreneurship and innovation by implementing less state intervention in the private sector. By introducing reforms, the Act aims to create a more business-friendly environment, attract both foreign and domestic investments, and ultimately drive economic growth and competitiveness in Brazil.

How does the program work?

At its core, the Economic Freedom Act is guided by four main principles: freedom as a guarantee in the exercise of economic activities, good faith of private parties when dealing with the government, subsidiary and exceptional intervention of the government in economic activities, and recognition of the vulnerability of private parties in relation to the government. These principles form the foundation for the Act's various provisions and reforms.

One of the key ways the Act works is by reducing bureaucracy for Brazilian investors and businesses. It allows individuals and entities to develop low-risk economic activities without the need for government approval, streamlining the process of starting and operating businesses. The Act also liberates business operating hours, including on holidays, without additional charges or fees, providing more flexibility for entrepreneurs.

In terms of corporate and contract law, the Economic Freedom Act introduces significant changes. It establishes the principle of minimum intervention in civil and business contracts, strengthening the concept of corporate veil and enhancing protection for shareholders' personal assets. This change aims to provide greater legal certainty for business transactions and encourage investment.

The Act also brings important modifications to investment funds in Brazil. It introduces new regulations that allow for the establishment of quota classes with distinct rights and obligations within funds. Additionally, it limits the liability of fund owners to the value of their shares, aligning Brazilian investment structures more closely with international standards.

To improve the regulatory environment, the Economic Freedom Act requires regulatory impact analysis for new federal administrative rules affecting economic agents. This provision aims to ensure that new regulations are justified and do not unduly burden businesses.

Furthermore, the Act works to enhance Brazil's business environment by introducing changes to labor laws, such as electronic work booklets and simplified working hour control systems for companies. These modifications are designed to reduce administrative burdens on businesses and increase flexibility in employment practices.

What is the overall cost?

There is no available information about the cost of implementing the legislation. 

How was it implemented?

The Economic Freedom Act in Brazil, officially known as Federal Law No. 13,874, was created through a multi-step legislative process that began in early 2019. The Act was a key initiative of President Jair Bolsonaro's administration, aimed at stimulating economic activity and reducing government intervention in private business operations.

The process started on April 30, 2019, when President Bolsonaro issued Provisional Measure No. 881 (Medida Provisória 881/2019). This provisional measure introduced the initial framework for what would become the Economic Freedom Act. Provisional measures in Brazil are a form of executive action that have the force of law for a limited time, allowing the government to take swift action on urgent matters.

Following the issuance of the provisional measure, there was a period of intense debate and discussion among various stakeholders. The Brazilian federal government, Congress, and the business community engaged in consultations to refine and improve the proposed legislation. This collaborative process helped ensure that the final law would effectively address systemic inefficiencies and promote economic growth.

On September 20, 2019, the provisional measure was converted into law by the Brazilian Congress, resulting in the enactment of Federal Law No. 13,874 - the Economic Freedom Act. This conversion process allowed for modifications and adjustments to the original provisional measure, incorporating input from various sectors and aligning the law with broader economic policy goals.

What impact has been measured?

There has not yet been an assessment of the impact of the legislation. 

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom