Portugal Company Formation
Portugal officially the Portuguese Republic is a country on the Iberian Peninsula in Southwestern Europe. It is the westernmost country of mainland Europe. To the west and south it is bordered by the Atlantic Ocean and to the east and north by Spain. The Portugal–Spain border is 1,214 kilometers and considered the longest uninterrupted border within the European Union.
The official language of Portugal is Portuguese and other regional language include Mirandize.
Portugal’s economy is mainly based on agriculture, tourism and trade. As a matter of fact, Portugal is an important partner in international trading. Besides, Portugal is well-known for its production of cork, oak and olive oil.
Incentives are offered for foreign company formation in Portugal, such as the development of renewable energies, specifically solar energy. Moreover, foreign investors willing to set up a company in Portugal can ask for help at the Agency for Investments and External Commerce in Portugal in order to find out more about the company formation in Portugal.
In 2008, the Bank of Portugal registered a sum of EUR 31.9 million from foreign investments in Portugal. The main investors in Portugal are: Germany, UK, Spain, France and the Netherlands.
Business Entities and Formation of Company in Portugal
There are many company types that are available in the legal system of Portugal. The most common ones are the public company and the private limited company.
A business run by a single person who can develop its activity in the agriculture, manufacturing or services industry. There is no legal distinction between proprietor assets and business assets, i.e., the individual owner has unlimited responsibility for all losses and debts. The individual owner is not required to have a minimum of capital to start a business. Companies legally defined as having individual ownership do not require a business contract. The individual trader must adopt a name (business name) made by its legal name, complete or abbreviated, and may add to it a nickname by which he is best known in the business and he may also add a reference to the business activity, and can never adopt more than one firm. Individual owners not carrying on a trade activity, but who develop profitable economic activity, may adopt a name (a term referring to the company business), with the same rules of the firm’s sole trader.
Single Shareholder Limited Liability Company
This type of entity is governed by the Decree Law No. 257/96 of December 31st and takes the form of a sole proprietorship but may be run by an individual person or in partnership that holds the entire business capital. The rules applied to these companies are the same applied to the Private limited liability companies, except those that have multiple partners. In this type of company, the liability of a shareholder is limited to the amount of capital, which cannot be less than € 5,000. The company’s name should include the words “Sociedade Unipessoal” or the word “Unipessoal” before the word “Limitada” or the abbreviation “Lda.”.
Individual Limited Liability Establishment
It is governed by Decree-Law No. 248/86 of August 25th, and it embodies the establishment of independent business assets or a special allocation of those assets to the establishment, through which a single person operates his enterprise or activity. There is a legal distinction between proprietor assets and business assets. The initial capital cannot be less than € 5,000, and at least two thirds (€ 3,333.33) must be paid up and the remainder in kind liable to pledge. The capital must be fully released at the date of the incorporation deed, depending if it is a private or public document. Company’s name must include the name of the owner, complete or abbreviated, (mention to the activity is optional), plus “Estabelecimento Individual de Responsabilidade Limitada” or “E.I.R.L.”
Public Limited Company
As a rule, there must be at least five shareholders (individuals or legal entities), domestic or foreign. CSC also allows for the incorporation of a S.A. by a foreign company that is initially the sole owner of shares representing the entire share capital. The capital is divided into shares and the shareholders’ liability is limited up to the value of its shares.
The minimum capital required for S.A. is currently € 50,000, represented by shares. Shares may or may not have nominal value (however, the same company cannot have both). The minimum nominal value of each share is € 0.01. All shares should represent the same proportion in the capital and, if they have a nominal value, must have the same nominal value. A maximum of 70% of initial capital must be paid up deferred, for a period not exceeding five years. The paid-in capital cash entries must be deposited in a bank account of the future company. At the time of the company’s incorporation the shareholders must prove this bank deposit under their responsibility.
The publication of financial statements is not mandatory but, annually, they should be submitted online through the “IES”. The S.A. companies must distribute at least 50% of its annual profits, unless otherwise is defined in the Articles of Association or has been approved by a majority of 75% of its share capital. The distribution of profits by the shareholders is allowed besides it is subject to certain legal and economic requirements and provided that the articles of association also allow it.
One of the most important legal requirements is the constitution of a legal reserve equal to 5% of net income until it reaches an amount equivalent to 20% of the capital. The articles of association may stipulate a higher minimum amount to the legal reserve.
Private Limited Company
The liability of the shareholders for company’s debt is limited, but they may be jointly responsible if the initial paid-in capital is not made as agreed in the Memorandum of Association.
As a rule, these companies are incorporated by two or more shareholders (can have just one partner but for a period not exceeding one year). Members are not liable to corporate creditors, but rather to the company: first each partner is liable up to the limit of its shares (“quota”) and after it is jointly liable with the other partners, limited to the capital originally invested. However, the CSC allows the Articles of Association to define that one or more partners can also be liable to the company’s creditors up to a pre-defined amount.
The initial capital can be released until the date of incorporation. However, provided it is legally accepted, the capital can be paid-in until the end of the first fiscal year, from the date of incorporation, and the partners can define a timeline for each cash entry. Since January 2011, there is no minimum capital required for Limited Liability Companies in Portugal. Partners must define a certain amount which is represented by “quotas” (shares), each one with a minimum value of € 1.00 and may assume different values.
Shares in a private company are usually transferred by a written agreement duly registered at the appropriate Registry Office. The Articles of Association often place restrictions on the transfer of shares or even preferred rights to certain shareholders or to the company itself. The transfer of shares is only effective after company’s approval, unless it is transferred between husband and wife, grand parents and children or even between partners.
The General Assembly must approve the annual financial statements within 3 months from the close of the fiscal year to which it relates. The publication of company’s accounts is not mandatory but they should be submitted online through the IES, annually.
Unless otherwise stipulated in the Articles or approved by a majority of 75% of its share capital, the Limited Liability Companies must distribute at least 50% of annual distributable profits. The distribution of profits by the shareholders is allowed but is however subject to certain legal and economic requirements, provided the articles of association also allow it.
As already mentioned for the S.A., one of the most important legal requirements is in regards to the constitution of a legal reserve equal to 5% of net income until it reaches an amount equivalent to 20% of capital (in any case, the minimum applicable amount to private companies may not be less than € 2,500). The articles of association may stipulate a higher minimum amount to the legal reserve.
A partnership company is an unlimited liability entity in which the partners have unlimited liability and therefore, upon the company’s assets, the partner’s assets are also liable to respond subsidiary before creditors to pay for the company’s debt.
The minimum number of shareholders is two. Industry partners are admitted, provided their share has a defined value in the Memorandum of Association, for purposes of allocating profits and losses. In relations with third parties, industry partners’ liability is identical to the other shareholders, but they are only liable for the company’s debt when defined in the Memorandum of Association.
Members who meet the obligations of the company, will have right of return against the other partners, i.e., the right to require from them the respective payment in those obligations. The law does not establish a mandatory minimum amount of initial capital, since partners have unlimited liability.
Regarding the company’s name, it must include the name of all, some or at least one of the partners, full or abbreviated, followed by “e Companhia”, or abbreviated, “Cia”, or any other that demonstrates multiple partners, for example “e Irmãos”, or abbreviated.
Limited Partnership Company
The limited partnership is a legal entity in which at least one member is subject to unlimited personal liability for the partnerships’ obligations (general partner or sócio comanditado), unlike the other partners (limited partners or sócios comanditários), whose liability is limited to the amount of capital subscribed by each of them.
This type of entities can adopt two different forms: simple partnership (no representation of share capital) or partnership limited by shares (only limited partners’ contributions are represented by shares). In a simple Limited Partnership, the minimum number of shareholders is two. A partnership limited by shares must have a minimum number of five limited partners and a general partner.
Limited partnerships bring together limited partners, who contribute to the capital in cash, and partners with unlimited liability, whose contributions are in kind (goods or services), assuming the management and effective management of the company.
The company’s name must include the name, full or abbreviated, of at least one general partner, followed by “em Comandita” or “& Comandita” for simple limited partnerships and “em Comandita por Acções ”or “& Comandita por Acções” for the partnership limited by shares.
European Limited Liability Company
European Limited Liability Company has the following characteristics: capital in shares, each partner has limited liability according to its portion of capital subscribed, the company name must adopt the reference “SE” and it is required that partners are established in more than one EU Member State. The location of registered office must be in one of those Member States, which is subject to registration in that Member State.
The SE can operate in any EU Member State with no need to establish affiliates in other EU countries.
A consortium is an agreement between two or more persons in which they agree to perform certain activities or to make a certain contribution in order to pursue some of the objectives defined by law.
If the consortium is considered as “external,” i.e., providing activities directly to others outside the consortium, a member will be appointed as head of the consortium, who will assume the duties inherent to this role, including the entity’s representation.
Only the member of the Consortium is liable to third parties only if he has signed the agreement with the reference “Consortium” on it, or the member by whom the head of the Consortium has signed.
Consortium members are not co-liable to third parties on the activities of the Consortium. However, responsibilities can be divided internally within the consortium whenever there is an obligation to compensate a third party caused by one member.
Enterprise Group (“Agrupamento Complementar de Empresas – ACE”) is a group of entities formed by single persons or companies that aim to improve their performance or the results of their activities.
ACE does not required initial capital, and generally all its members are all liable to the group’s debt. In case ACE performs accessory profitable activities, whether or not authorized by the agreement, the rules of partnership companies (Sociedade em nome coletivo) will apply for all purposes, including taxation.
The Memorandum of Association of an ACE must include the name, purpose, registered office, the duration, if any, and the contributions of each member for the costs and the capital, should be delivered for registration in the National Company’s Registry within three months. An ACE must request the admissibility certificate for the company’s name or denomination at the National Registry of Legal Entities, prior to the registry. The Board Members of the ACE is carried out by one or more persons appointed by the General Assembly, whose main activity is to present the annual accounts. An ACE cannot acquire property or other real property unless the property is for the location of its headquarters, affiliated office or their own services; It is also prohibited the participation in civil companies, trade or other ACE, and the exercise of other company positions in any associations or ACE.
Pure Holding Company
Holding companies (SGPS) owned stock in other companies and are aimed at managing these group of companies. They may take the form of Private Limited Liability Company or Public Limited Company.
Permission is granted to holding companies to provide technical services and administrative management of subsidiaries, as long as there is a written agreement for said services in which the corresponding remuneration is stipulated.
All SGPS companies are required to appoint a chartered account. The SGPS shall submit annually, by June 30th, to the General Inspectorate of Finance, the inventory of stocks included in financial investments of the last approved balance sheet.