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January 11, 2019

Legal Milestone: Endowment Act is enacted

Capital Markets

Law No. 13,800 was published in January 4, 2019, allowing the formation of endowments funds. It results from the conversion of Provisional Measure No. 851/2018, which was created after the destruction of the National Museum at Rio de Janeiro. The law regulates endowment funds that are constituted to support, with long term resources, institutions and projects focused on topics of public interest, such as education, science, public security, technology, culture, health and environment.

Popular in other countries, endowment funds are an alternative to fund and manage resources for entities dedicated to purposes of public interest.

The endowment funds can receive from individuals or legal entities donations that are invested by the organization that manages the endowment fund. The goal is to preserve the donated amount and solely use the output from the investments as a regular and stable source of resources. 
 
The organization that manages the endowment fund shall fundraise and manage the endowment fund formed from the resources donated, as well as execute partnership instruments. It will be established in those instruments matters such as as which topic of public interest will be object of the partnership. If the supported institution has public nature, then the organization that manages the endowment shall also sign an execution term with the supported institution and, if necessary, with the organization that will execute the project or program of public interest. The execution term will determine details such as how the resources will be used and the responsibility of each party.

Additionally, the law establishes governance and transparency basis for the funds, which structure is composed by a Board of Directors, an Investments Committee and a Fiscal Board.
 
Note that it is prohibited the transfer of resources to the endowment funds from direct governmental bodies, autarchies, governmental funds, some public companies and the supported institution. The endowment funds shall not count on guarantees from the direct or indirect public administration and the organization that manages the fund shall be responsible for its obligations up to the limit of the assets and rights that integrate the endowment fund.

It is also worth mentioning there are three types of donations that can be admitted by the formation act of the endowment funds:

  1. Non-restricted permanent donation: it is a resource which is incorporated as asset of the endowment fund. It cannot be redeemed as it can only be used in programs, projects and other purposes of public interest.
     
  2. Restricted permanent donation with specific purpose: it is a resource which is incorporated as asset of the endowment fund. The output can be used in projects related to the purpose previously determined in the donation instrument. 
     
  3. Donation with specific purpose: it is a resource linked to a project previously determined in the donation instrument. It cannot be used immediately and shall be incorporated as asset of the endowment fund. The organization that manages the fund can redeem the original amount invested under the terms set forth in the donation instrument.

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