Corporate law is increasingly shaping venture capital (VC) policy debates around the world, from recent reforms in the United States to proposals for a new corporate framework in the European Union. However, developments in Latin America have received far less attention, despite offering valuable insights. New research tracking corporate law changes across multiple jurisdictions highlights three important lessons from the region’s experience with pro-VC reforms.
The first lesson is that targeted corporate law reforms can significantly boost startup growth and even enable the emergence of billion-dollar companies. Contrary to the belief that legal systems are already flexible enough for investor-founder agreements, the study shows that many jurisdictions impose hidden constraints that limit key arrangements, such as investor rights to appoint board members. In response, countries like Chile, Colombia, and Mexico introduced sweeping reforms between 2005 and 2010, creating new corporate structures designed specifically for startups and venture capital. These changes dramatically improved legal flexibility, and within about a decade, each country produced its first Unicorn startup. Adjusted for income levels, these nations now outperform many peers, including some European economies, in generating high-value startups. Importantly, the reforms also helped retain founders domestically rather than pushing them to relocate to more favorable jurisdictions.
The second lesson is that legal reform alone cannot replace institutional trust. Despite improved corporate frameworks, many high-growth companies in Latin America continue to rely on offshore governance structures. A prominent example is Rappi, which operates primarily in Colombia but established a parent company in the United States to manage investor agreements and governance. This approach reflects investor concerns about domestic legal systems and allows them to rely on jurisdictions perceived as more stable. While offshore structures have facilitated capital inflows, they also limit the development of local legal ecosystems, creating a cycle where weak institutions drive capital abroad, which in turn slows domestic institutional growth.
The third lesson is that increased legal flexibility can introduce new governance risks. Reforms in countries like Chile and Colombia have made shareholder agreements more powerful, allowing them to shape company governance in ways similar to formal corporate charters. However, unlike charters, these agreements are often not publicly disclosed, making it difficult for stakeholders to fully understand control structures within firms. This lack of transparency can create challenges for employees, investors, and regulators, particularly in environments where legal systems are still evolving. In addition, dominant business groups in the region may use these flexible structures to obscure control and financial arrangements, potentially deterring investment or increasing its cost.
Overall, Latin America’s experience demonstrates that corporate law reforms can play a transformative role in fostering venture capital and startup ecosystems. However, the outcomes depend not only on legal design but also on institutional trust and governance safeguards. For policymakers in regions such as Europe, these findings highlight the need to balance flexibility with transparency and accountability to ensure sustainable and inclusive growth in venture capital markets.
