The Secretary of State for Digital Advancement, a branch of the Ministry of Economy and Business, has launched the legislative procedure for the Law to Support the Start-up Ecosystem (known as the “Start-ups Law”) by opening the public consultation phase.
This initiative is an essential part of Spain’s announced strategy to become a “start-up nation” and to restructure its productive model by boosting entrepreneurship. The public consultation phase aims to ensure that the draft law reflects the different needs and idiosyncrasies of the entrepreneurial ecosystem.
As the government has already announced, the law will establish a specific legal nature for start-ups that takes into account the unique features of this type of company. As such, we will see a whole new legal framework for technology-based start-ups.
The deadline for submitting public comments to the Ministry of Economy and Business ([email protected]) is January 25, 2019.
Garrigues Startups will be closely monitoring progress of the draft law. For now, we will get the discussion going by citing some of the main challenges lawmakers are facing in creating this framework.
1. Setting the scope: definition of a “start-up”
When establishing the legal framework, one essential – and tremendously complex – question is to first define the very concept of a “start-up”. The new regulation must clearly stipulate what qualifies as a start-up, what implications this has and how it differs from a traditional SME. If this term is not defined and the scope is not properly set, lawmakers will be hard pressed to achieve their goal of endowing the start-up ecosystem with greater legal certainty and incentives.
2. Establishing measures to help entrepreneurs secure financing/investment
Start-ups simply cannot succeed without sufficient financing. The new law should recognize the role of all types of investors (venture capitalists, business angels, crowdinvestors and even the famous “Friends, Family and Fools”) and establish attractive incentives to help boost investment in start-ups.
3. Designing appropriate tax incentives for both start-ups and investors, including large companies
The government can help support start-ups by providing tax incentives for research, development and technological innovation, as well as for investments in and financing of these undertakings.
The law should also address incentives for large companies, to encourage them to take part in the start-up ecosystem.
4. Adopting employment measures that provide effective incentives for creating and developing start-ups
The start-up ecosystem should also be made more attractive through subsidies and rebates on social security contributions, for both self-employed workers and employers. Furthermore, if lawmakers strengthen the contract to support entrepreneurs and modify or create other appropriate ways of hiring workers, start-ups will find it easier to engage and retain talent.
5. Determining the mechanisms for closing out a start-up if, despite all efforts, it fails to take off
Second chance mechanisms are currently in place for entrepreneurs whose business ideas do not pan out. These protection measures limit the risk factors that would otherwise pose a barrier to entry in the sector. Nevertheless, since these mechanisms fall short of covering all the different hardships entrepreneurs must face if their businesses fail, the new law is a great opportunity for lawmakers to shore up and round out those mechanisms already in place.
What other challenges can you think of? Tell us on Twitter and on LinkedIn.