Legal Aspects of Companies in Portugal

It must be correctly worded in Portuguese and must specify the business that the company will perform in sufficiently accurate terms.

Legislation does not allow a company to define its object using vague or general statements that do not provide sufficient clarification of the business. 

For example: any commercial or industrial activity permitted by law.

Some reasons for clearly defining the company's object:

1. Specifies the company's capabilities;
2. Obligates the managers to act within the object's boundaries;
3. Binds the company before third parties;
4. Prohibits managers from competing with the company in any field encompassed by the object.

Examples of valid Company objects

Example 1: The object is consultancy of economic, financial, accounting and management services; the formation and development of companies on the domestic and international level; market surveying, advertising and marketing services; commissions and consignment; wholesale or retail import and export.

Example 2: The object consists of the trade of equipment and materials, training, technical assistance, security engineering, provision of services and installing systems in the fields of protection, security, emergency, rescue and fire-fighting in public and private works.

Example 3: The object is: projects, studies, audits, consultancy, and training in the field of occupational safety, rescue, fire and calamities, supervision of public or private works in the field of safety procedures, the e-commerce of safety and security items and equipment.

Example 4: The object comprises the sale, distribution and maintenance of vending machines; the sale, distribution and maintenance of water machines; the retail sale of food and drinks; the sale of consumable goods for vending machines.

The business name of the company comprising a specific title or title and name of a member may not be identical to the registered business name of another company, or similar to such an extent that it could lead to errors. It must provide as much indication as possible regarding the object of the company.

The outstanding elements of a company's business name may not suggest a business different to that of the company's object.

When the business name of a company consists solely of the names of all, any or some of the members, it must be completely different to any that have already been registered.

Denominations comprised exclusively by standard expressions which identify or are directly associated with the company’s activity, practice or product, as well as toponyms and any other geographical indications, are not admissible.

The following shall not form part of the business names of companies:

• Expressions which could be misleading as regards the legal characteristics of the company, in particular expressions currently used to designate public bodies or non-profit organisations;
• Expressions which are prohibited by law or offensive to morals or good taste.

The business name must end with the word "Limitada" or its abbreviation "Lda" in private limited companies.

If the company has only one member, the business name must include the term "Sociedade Unipessoal" or word "Unipessoal" before "Limitada" or "Lda".

The business name must end with the word "Sociedade Anónima" or its abbreviation "S.A." in public limited companies.

If a company's accounts show that half of the share capital has been lost, i.e. when the company's shareholder's equity is less than or equal to half the share capital, or there is, at any time, just cause to believe that such a loss has incurred, the management shall immediately convene a general meeting to inform the members of the situation and permit the appropriate measures to be taken.

Whenever the company’s own capital is equal or of less than the half of the respective share capital, it is considered that half of the share capital has been lost.

The notice of meeting shall contain a minimum of the following points of order for discussion by the members:

1. Winding up the company;
2. Reducing the company’s share capital to a value not less than its equity capital;
3. The members make capital contributions to reinforce coverage of the company's capital.

The company must be fully identified on its company headed paper, such as that used for invoices. The company headed paper must contain the company name, share capital, address of the registered company, taxpayer number and company registry office number.

Entering into a company contract is not enough for a company to possess full legal personality. A company exists as such from the register date of the memorandum of association, which must occur within 90 days of entering into the memorandum of association.

Up to that point, all parties intervening in business carried out on behalf of the company are jointly and severally liable, to an unlimited extent, for all contracted obligations.

Relations prior to signing the memorandum of association

If two or more individuals create the false appearance that there is a company contract between them, then they shall be held jointly, severally and unlimitedly liable for the obligations contracted in these terms by any one of them.

If the formation of a commercial company is agreed to by its members, but they commence business before entering into the memorandum of association, then the provisions related to civil companies are applicable to relations between the members and between the members and third parties.

Relations prior to registration

In the period between signing the memorandum of association and its final registration, relations between members shall be subject, with the necessary adaptations, to the rules established in the memorandum of association and in the Portuguese Companies Act, except when such relations depend on the final registration of the memorandum.

The transfer of ownership of company equity holdings between living persons and amendments to the memorandum of association always require the unanimous consent of the members.

All those acting in representation of a company, as well as the members that authorised the business in question, bear joint, several and unlimited liability for all business conducted on the company´s behalf, in the period between signing the memorandum of association and final registration thereof. The other members are liable to the extent of their initial capital contribution in the company, plus any sums received by way of profits or the distribution of reserves.

The provision set forth in the previous paragraph ceases if the business conducted is expressly dependent on the registration of the company and the coming into effect thereof.

Invalidity of the memorandum of association prior to registration

Until such time as the final registration of the memorandum of association takes place, the rendering invalid of the memorandum of association or of one of the business statements is subject to the provisions applicable to null or voidable legal transactions, notwithstanding the provisions of Article 52 of the Portuguese Companies Act.

Invalidity arising from incapacity may be claimed by a contracting party who is incapacitated, or by its legal representative, against the other contracting parties and third parties alike. Incapacity arising from defective will or usurious practices may only be invoked against other members.

Taking on of business by the company prior to registration

With the final registration of its memorandum of association, a company fully takes on the following:

• The rights and obligations arising from the normal use of an establishment which constitutes a capital contribution in kind or which has been acquired by the company, in compliance with the stipulations of the memorandum of association;
• The rights and obligations emerging from legal transactions concluded prior to entering into the memorandum of association and which are specified therein and expressly ratified;
• The rights and obligations arising from legal transactions conducted by the management or directors under the authorisation granted by all members in the memorandum of association.

The rights and obligations arising from other legal transactions conducted in the company´s name prior to the registration of the memorandum of association may be taken on by the company by means of a decision by the management, which must be communicated to the counterparty within 90 days of the registration.

The company shall not assume obligations derived from legal transactions which are not mentioned in the memorandum of association and which entail special benefits, incorporation costs, initial capital contributions in kind or the acquisition of assets.

Registration of Quotas

Material events relating to quotas shall not legally bind the company whenever a request for registration, when required, is not made.

The company is responsible for ensuring the registration of facts which have in some way involved the intervention of or have been requested by a transferee, a transferer, a resigning member, a usufructuary or a secured creditor.

Registration applications must respect the order of the respective requests. In cases where the registration of various events relating to the same quota is requested on the same date, the registrations must be requested in order of event age. In the event of the fact referred to in the previous paragraph having been certified on the same date, registration must be processed in the order of their respective subordination.

So as to ensure that the company is able to process the registration of deeds modifying the ownership of quotas and rights conferred by them, the registered owner must have intervened in the process.

Duties of the company:

• The company must not apply for registration in cases where the request is not viable, by virtue of the applicable legal provisions, the documents submitted and previous registrations. In particular, the legitimacy of the interested parties, the compliance of the constitutional documents with regulations and the validity of the deeds contained therein must be verified;
• The company must not seek registration of a deed which is subject to charges of a fiscal nature, without proof that these have been paid;
• The documents certifying information relating to quotas or to their owners must be filed at the registered office of the company until closure of the settlement process;

The company must grant access to the documents referred to in the previous paragraph to any person expressing a credible interest in consulting them, within five days of such a request.

The company is bound by the actions undertaken by its management, on behalf of the company, within the limits provided for by law, considering of any limitations imposed by the company’s corporate purpose, provided in the articles of association or arising from a shareholders’ resolution.

Nevertheless, it must be noted that third party rights can be contested in circumstances of limitations to powers resulting from the company object if the company proves that the third party was aware of or could not ignore, taking into consideration the case´s circumstances, the fact that the implemented act contravened the company´s object and provided that the company had not decided to implement said act by express or tacit resolution of the members.

To that end, the fact that the company object is contained in the memorandum of association and this has been published is not sufficient to prove that the third party knew, or could not ignore, that the act did not abide by the company object.

Managers bind the company through written documents which are signed expressly on behalf of the company.

The registered office of the company constitutes its domicile and it has to be in an accurately defined location. Post office boxes are not permitted.

If the registered office is not indicated in the memorandum of association the same may be rendered null and void.

The company may only possess one registered office, notwithstanding the fact that private domiciles may be indicated for certain business areas.

The company can, in general, create subsidiaries, agencies, branches or other local forms of representation in Portugal or abroad by resolution of its shareholders, when the articles of association so require.

Unless otherwise stated in the memorandum of association, management may relocate the company’s registered office within national territory

Reserves are assets generated by the company itself, in principle, and which the members cannot (due to requirements in law or the articles of association) or do not want to share out.

There are various types of reserve:

Contractual or articles of association reserves

Are established at will by the members in the company’s articles of association or under the terms of a specific contract.

These reserves can be used for a variety of purposes. To modernise equipment, purchase premises, to be incorporated into the capital, for example.

If the clause in the memorandum and articles of association that gave rise to the reserve is amended, these reserves can be untied from their planned use and shared out amongst the members in the form of dividends.

Non-compulsory or free reserves

Members can decide to create certain reserves each year. These reserves originate from profits not shared out.

In general, only half of the profit available for sharing can be retained as a reserve.

Statutory reserves

Are legally mandatory, and determine that at the end of each fiscal year, a percentage, which shall not be less than the twentieth part of the company’s profits, is to be kept as a statutory reserve until the total amount in the reserve is equal to 20% of the share capital.

The purpose of these reserves is:

• To cover that part of the loss recorded in the balance sheet for the financial year which cannot be covered by the use of other reserves;
• To cover that part of the loss retained from the previous financial year and which cannot be covered by the profit in the financial year nor by the use of other reserves;
• Incorporation into the capital.

In the event of infringement of statutory reserve regulations:

If by resolution, legal provisions regarding the creation, reinforcement or use of statutory reserves are breeched, the resolution is deemed null and void.

The managers and directors promoting such resolutions may have civil liability proceedings instigated against them.

Secret reserves

This is an indirect process of not sharing out profits, through the concealment of profits. It is implemented either by the understatement of assets or by the overstatement of liabilities.

The closure and approval of the accounts comprises the following steps:

Annual report and accounts

The management report should contain, at least, a true and clear progress account of the business, the company’s performance and its current standing, as well as a description of the main risks and uncertainties that the company faces.

The management report, the accounts, and financial statements, prepared by the board should, as a general rule, be presented and reviewed within three months of the last day of the fiscal year. They should, in addition be made available to all members at the company headquarters during business hours; starting on the day the general assembly is convened to review the referenced documents.

Annual general meeting

The general meeting must meet within three months of the close of the financial year, or within five months of the same date in the case of companies required to present consolidated accounts or applying the equity method, with the purpose of:

• Ratifying the annual report and accounts for the financial year;
• Approve the proposed appropriation of income;
• Performing a general appraisal of the company´s management and supervision and, if necessary and even if such items do not form part of the meeting´s business, removing the management from office, within the scope of its powers, or stating its vote of no-confidence in the same;
• Performing the elections under its jurisdiction.

The general assembly is waived when all members are also managers and all of then sign, without reservation, the annual report, accounts and proposed appropriation of income and handling of losses, except when the company is subject to a statutory audit of the accounts.

Registration of accounts

All duly approved account approval documents must be deposited in the Company Registry Office, thereby placing them in the public domain.

The application for registration of the accounts must be made until the 15th July.

Failure to comply with the registration of the accounts, precludes the registration of any facts about the company, except the appointment and removal from office of directors and supervision, for any reason other than the passage of time, administrative authority decisions, court actions, decisions, procedures and provisional measures, including seizure, pledge of shares or quotas or other rights over them, and other acts or measures affecting the free disposal and any other deposit registrations.

Companies that, for two consecutive years, fail to comply with the registration of accounts, are subject to an administrative procedure of dissolution and liquidation of the company.

A sequence of legal facts and procedures must be followed to close a company:

Winding up

Winding up is the procedure through which the company decides or recognises that it should close down.

Causes of winding up

The causes of winding up can be:

Causes of immediate winding up

Winding up is immediate on the occurrence of one of the following facts:

1. Deadline established in the articles of association. A company has unlimited duration by default, though the members can define the duration in the articles of association. In any case, once the term has ended the members can agree to extend or eliminate the limited duration before it expires, or even decide to bring a company in the process of winding up back into business.
2. Resolution of the members. In private limited companies, the resolution to wind up the company must be passed by three-quarters of the votes of the total capital, unless the articles of association establish a higher majority or other requirements.
3. Complete fulfilment of the corporate object. If the company´s object is completely fulfilled, then the company has no further reason to exist.
4. Supervening illegality of the company´s object. The illegality must encompass the entire object.
5. The company is declared insolvent. Insolvency is decided by a law court and as such the company must wind up its activities and go into liquidation, in order to pay off its creditors to the extent possible.
6. Other facts established in the articles of association. The articles of association can define other occurrences that cause immediate winding up.

In the event of immediate winding up as described in 1, 3 and 4 of the previous paragraph, the members may resolve to consent to winding up by a simple majority, and any member, successor of a member, or company creditor may file for notarial justification or for simplified justification proceedings relative to winding up.

Causes of administrative winding up

A request for the administrative winding up of a company may be submitted in the cases defined in law or in the articles of association, and whenever:

1. The number of members is smaller than the minimum legal requirement for a period of no less than one year, except if one of the members is a public legal person or an entity that is legally comparable thereto. The members can request that a reasonable term be provided them to remedy the situation, suspending the winding up of the company;
2. When the corporate object becomes impossible to fulfil;
3. When the company has not performed any business activity for two consecutive years;
4. When the company´s business is substantially different from that stated in the articles of association. The winding up procedure will not be ordered if the infringement is corrected while the procedure is pending;
5. When a natural person is the member of more than one single member limited company;
6. When a single member limited company has another single member limited company as its sole member;
7. Other circumstances established in the articles of association;

In any of these cases, the members may wind up the company based on a past fact by absolute majority of the votes cast at a general meeting.

The company can apply for administrative winding up through its members, respective successors and creditors, by means of an application to that end in the competent Company Registry Office.

Causes of enforced winding up

If the interested parties do not initiate administrative winding up proceedings then the appropriate registration service should enforce such proceedings whenever:

1. The company has not filed its financial statements for a period of two consecutive years, and the tax authorities inform the registry service that the company has not filed its income tax return for an equal period;
2. The tax authorities inform the appropriate registry service of a lack of company activity, as defined by the provisions of the applicable tax legislation;
3. The tax authorities inform the appropriate registry service that the company has filed a declaration of cessation of business, under the terms of applicable tax legislation.

Form of Winding up

Generally, company winding up resulting from a resolution adopted at the general meeting is not subject to any special form. The management or the receivers must petition that the winding up be registered by the appropriate service. Any member may file this request at the cost of the company.

Liquidating companies

At the end of the winding up procedure the company is immediately placed in liquidation. This aims to finalise pending business, pay off debts, collect from debtors and share out the surplus resulting from liquidation amongst the members.

As a general rule, a company in dissolution will maintain its legal personality, except when otherwise stated by law or when the formality of liquidation requires otherwise, and will remain subject to the provisions, including any necessary adaptations that govern operational companies.

A dissolved company must add "company in liquidation" or "in liquidation" to its business name and appoint the liquidators.

Liquidation can be performed in one of the following ways:

Immediate distribution

If upon the date of winding up there are no outstanding debts, or if the outstanding debts are only of a fiscal nature (and are not made payable on the date of dissolution) members may proceed immediately to the distribution of assets.

Tax debts that have not yet come due on the date of winding up do not impede immediate distribution. However, in such an event, all of the members remain jointly and severally liable to an unlimited extent for these debts.

Legislation establishes a special procedure of immediate cessation of a company´s existence that involves the winding up and liquidation of a company with no assets or liabilities to liquidate, and which has been unanimously approved.

Global assignment

All of the assets and liabilities resulting from the liquidation of the company may be assigned to one or more of members, when the remaining members are compensated monetarily, so long as written consent is provided by all of the company´s creditors; if provided for in the articles of association, being the others paid with cash.

Tax debts that have not yet come due on the date of winding up do not impede global assignment. However, in such an event, all of the members remain jointly and severally liable, to an unlimited extent, for these debts.

Operations preceding liquidation

The management has 60 days to organise and approve the company´s financial statements up to the winding up date. If it fails to do so, the responsibility falls on the liquidators.

Duration

Liquidation must have terminated and the distribution of assets been approved within two years of the company´s winding up date. This period may be extended for a maximum of one year, always by means of company resolution.

A shorter time period may be defined in the articles of association or by resolution of the members.

If the time periods are not complied with, the registry office must compulsorily initiate administrative liquidation procedures.

In the event of administrative liquidation, the time limit set by the registrar must not be greater than one year.

Liquidators

There follow some details of liquidators, which are responsible for effectively liquidating the company by non-judicial means:

Appointment

Unless otherwise stipulated by the articles of association or a resolution adopted by the members, the company´s management become liquidators at the time the company is considered wound up.

The members may appoint new liquidators, in addition to or replacing those already appointed.

If no liquidator has been appointed, the company´s supervisory board or any of its members or creditors may request that the appropriate Registry Office administratively appoint a liquidator.

A legal person may not be appointed liquidator, except if they are law firms or statutory auditing firms.

Appointment is subject to registration in the Company Registry Office.

Removal from office

The members may resolve to remove the liquidators at any time without just cause.

The company’s supervisory board or any of its members or creditors may petition that the liquidator be administratively removed from office based on just cause. The dismissal from office is effective on its registration.

Remuneration of receivers

It is set by members´ resolution and forms part of the liquidation costs. When the insolvency process or compulsory liquidation is the underlying cursor, the remuneration is equal to that established for liquidators and experts appointed by a court.

Liquidators´ duties

Liquidators must:

• Finalise any outstanding business;
• Fulfil the company´s obligations;
• Collect from debtors to the company;
• Pay all company debts permissible by the value of the assets;
• Convert any residual assets to cash;
• Propose the distribution of the company’s assets;
• Submit liquidation accounts and a report during the first three months of each calendar year;
• Approximately calculate the liquidation costs, in order to exclude this value from the distribution of assets;
• Hand over the goods according to the approved distribution of assets;
• Apply for the registration of liquidation closure.

The members may authorise the liquidators to, via resolution:

• Temporarily continue the company´s previous business activities;
• Contract any loans necessary to effectively liquidate the company;
• Proceed with the global sale of the company´s assets;
• Proceed with the conveyance of the company´s premises.

Notwithstanding any clauses in the articles of association or resolutions to the contrary, if there is more than one liquidator, each one shall have equal and independent powers for liquidation activities, except for the powers regarding the disposal of company assets, which require the participation of at least two liquidators.

The liquidators´ duties generally end when the company is wound up.

Liability of liquidators

Liquidators who maliciously or falsely state on the documents to be presented at the general meeting that all of the rights of the company´s creditors have been settled, shall be personally liable to those creditors whose rights were not duly provided for. Except for cases of willful misconduct, liquidators have the right to regress against former partners.

Distribution of remaining assets

The remaining assets, after settling or making appropriate provision for the rights of creditors of the company, can be distributed in kind, if such is established in the memorandum or if the members unanimously so resolve.

The remaining assets are first assigned to reimburse the members for the amount effectively invested in the company. This amount is the fraction held by each member of the capital, notwithstanding that established in the articles of association in regard to the assets used as the initial capital contribution being of a higher value than the par value of said fraction.

If full reimbursement is not possible, the remaining assets are partitioned amongst the members so that the losses are distributed across the members in proportion to the share each one has in the company.

If, following full reimbursement to the members, the asset balance is still positive, then these assets should be distributed in the same proportion as those used for profit sharing.

Final accounts, report and resolutions by members

The final accounts of liquidators must include a plan as to how the remaining assets shall be distributed, and a report containing specific mention that suitable provisions have been made for all creditor rights and that the receipts and relevant supporting documents are available for examination by the members.

Lastly, the above-described is placed before the members for approval.

Delivery of distributed assets

Pursuant to resolution by the members and in accordance with the same, the liquidators deliver the assets assigned to each member. The liquidators are responsible for any formalities required to assign the assets to the members.

Closure of liquidation proceedings

The liquidators must apply for the registration of the closure of the liquidation proceedings.

The company is considered to be wound up, even among the members, on registration of the closure of liquidation proceedings.

Following liquidation and winding up of the company, the former partners are liable for any company liabilities which are outstanding or for which provision has not been made, up to the amount they received in the distribution of assets.

Following liquidation and winding up of the company, if non-distributed assets are discovered the receivers shall propose the distribution of these assets among the former partners, converting them into monetary amounts if no agreement regarding distribution in kind is reached.

Judicial liquidation

It must also observe the procedures provided for in the Code of Civil Procedure.

Administrative liquidation

The administrative liquidation procedure commences automatically at the end of the administrative winding up process or via submittal of application from the company, its members, respective successors or creditors, whenever legislation establishes that it must be performed administratively.

The administrative liquidation procedure may be instigated by the registrar on its own initiative, by means of a document specifying the circumstances that justify and have led to the instigation of the procedure, and appointing one or more liquidators; or when:

• Winding up was performed via a compulsory procedure;
• It is noted that the terms defined for the duration of liquidation have terminated without the respective registration of closure having been applied for.

Under the Commercial Registry Code, a company must appoint a representative (natural or legal person) with tax residency in Portugal for tax purposes, as well as the custodian of the commercial bookkeeping, to be kept for a period of 5 years. Usually, the representative and the custodian are the same person/entity.