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Starting-Up a Business in Portugal: A corporate legal approach

Portugal is a country that offers a cost-competitive and skillful labour market, good infrastructures and a great geostrategic location – which has enabled in the past the Portuguese to dominate maritime exploration during the Age of Discoveries.

It provides a platform channel to invest in Africa and Latin America also due to the strong cultural and economic ties and trade relationships that have been promoted over the years with several countries such as Angola, Mozambique, Cape Vert, Brazil or Venezuela. The Portuguese language is still a global language with over 260 million speakers worldwide.

Portugal is an alternative option as target market for investors coming across different industries.

Clients usually request legal assistance to start up new businesses or to invest in different industries by acquiring other companies, businesses and assets. They decide either to acquire companies already operating or to incorporate a new one.

The incorporation procedures to be executed in Portugal are no longer complex nor unreasonably expensive. Investors usually decide either to incorporate a public limited liability called "sociedade anónima" (hereinafter "SA") or a private limited liability called "sociedade por quotas" (hereinafter "Lda") or even a "sociedade unipessoal por quotas", whenever it is incorporated by a sole quota holder.

The decision over the incorporation by means of an SA or an "Lda" is mainly based on:

(i) the extension and scope of business plus the investment intended to be executed,

(ii) the legal applicable requirements (for example solely SA companies can be listed),

(iii) the future ability to raise capital, and

(iv) the rules on transfer of shares/quotas.

The "Lda" comprises a lighter corporate structure than an SA, hence being more suited for short-term investments, whilst an SA is usually recommended for enduring investments, represented by a large number of investors.

Small and medium-sized companies ("SMEs") are usually incorporated as "Lda" which offers more suitable characteristics:

(i) Lower capital requirements than in a SA;

(ii) Statutory restrictions regarding the transfer of quotas are more stringent than in a SA;

(iii) More flexibility and greater autonomy to decide on the company's corporate structure and organization.

Nevertheless, it is worth noting that often large companies are incorporated as "Lda", tailoring the statutory model, initially designed for SMEs, to suit their goals and interests, sustained by a shareholders agreement.

The law allows the quota holders of "Lda" to set under the By-Laws the share capital amount at a level that is suitable for the company to carry out its activity. The share capital is represented by several quotas, each of them having a different nominal value that corresponds to the percentage held by each quota holder in the share capital (the minimum nominal value legally established is currently € 1); Quotas are not materialized in a document; and its transfer must be executed by a written agreement, followed by registration with the Commercial Registry Office.

As regards to SA companies, the minimum amount of the share capital legally required for the incorporation is currently € 50.000, of which, at least thirty per cent requires to be fully paid up on the incorporation date.

The share capital of a SA is divided in shares that must have the same nominal value (minimum legally established is € 0,01 per share); Share certificates are issued to represent one or more shares in accordance with the By-Laws and shares may be (i) nominative or bearer and represented either by (ii) certificates or dematerialized.

It should be noted that, as opposed to what is verified in a SA, the identity of the quota holders and the relevant nominal value of the quota respectively held by each of them are stated in the By-laws and in the Commercial Registry Certificate of a "Lda"; therefore being easier for any third party to identify who are the quota holders and their relevant equity share in such company.

SA companies have traditionally met the needs of larger companies. Although is characterized by a more complex legal framework and by the need of an organic structure which can limit the ability of shareholders to structure the company in accordance with the needs of small businesses, it offers large companies considerable advantages such as:

(i) Investing in the company is easier since its capital is divided into shares that can be listed on stock exchanges and are naturally transferable (the share capital of an "Lda" is divided in quotas which are not materialized in a document and its transfer has to be executed by a written agreement and subject to registration); SA companies can raise capital by going public on the stock exchange and can issue negotiable debt instruments to the public;

(ii) Wider access to financing sources;

(iii) SA regulations establish more complex supervision structures and internal control models aimed at protecting the company's share capital and its creditors.

Regarding corporate governance, the managing body may be organized either by: (i) a sole director; or (ii) a board of directors; in case of SA the by-laws commonly specify the number of board members, the duration of each term and their duties. Directors must comply with duties of care and loyalty and must act bona fide in the best interest of the company. Directors are liable towards the company, its shareholders and the company's creditors for any damages they may cause due to any acts carried out in breach of the applicable laws and regulations, the company's by-laws, or the duties associated with their position.

Although it is not mandatory to have a Supervisory Board in a "Lda" as opposed to a SA, in some particular situations legally foreseen, "Lda" is deemed to appoint a statutory auditor, whenever two of the three limits legally foreseen – for (i) the total on balance sheet; (ii) total net sales and other income or (iii) average number of workers employed during the financial year – are exceeded. In this case, the appointment of a statutory auditor shall only cease to be necessary if the company establishes a Supervisory Board or if two of the three requirements legally set forth are not fulfilled for two consecutive years.

Investors can also choose to set up a branch or a representative office which are common options available if investors intend to develop a temporary activity in Portugal or to test the feasibility of a certain business project prior to the incorporation of a company.

Under Portuguese Law, foreign companies which do not have their central management and control in Portugal, and that intend to carry out their business activity within the Portuguese territory for a period exceeding one year, are required to set up a permanent representation in Portugal and to comply with the legal provisions in force related with, namely but not limited to, commercial registration.

A branch is a secondary establishment operating permanently as a representative of its parent company. Although it has a degree of independence from its parent company and carries out all or part of that company's business activities, it does not have a separate legal personality (excluding the particular tax case as to ascertain the branch's tax obligations). Any act performed by the branch's legal representative appointed by the company to act in such capacity within the powers granted shall bind the parent company that remains the sole responsible for the same.

Representative offices mostly carry out ancillary, accessory and instrumental activities (information gathering, market prospection and local support). Like branches, a representative office does not have a separate legal personality which means that the parent company of a branch or representative office, will be fully liable for the fulfilment of their obligations and debts.

Another investment option is to associate through a joint venture with a local business partner who is already established and operating in Portugal. Venture partners often create an equity joint venture by incorporating a limited liability company or acquiring a stake in an existing company. Portuguese law foresees other joint venture options such as: (i) Enterprises complementary group ("ACEs"), with no separate legal personality besides that of its members, created to carry out specific projects or services, such as an engineering or a construction project; (ii) European groups of economic interest ("AEIE"), aimed to facilitating, improving or increasing the economic activity of their members, who are held jointly and severally liable, to the AEIE; They are often created to provide centralized services for a group of companies. Entities of at least two different EU member states must be involved; Another option is selling or providing goods or services in Portugal without setting up a legal structure, for instance by entering into a distribution, franchise or agency relationship with a third party established in Portugal.

This is a brief overview of some of the corporate main legal issues to take into account while setting up an investment in Portugal: a country that welcomes investors offering good conditions to start and carry on businesses.


  1. This article provides legal general information. It is not intended nor can be considered, as a comprehensive and detailed analysis of Portuguese law or as legal advice from CTSU.