INCORPORATING A COMPANY
IN THE EU - EUROPEAN UNION
Forms of company
Incorporation of a company
Branch versus subsidiary
In general, there is little operational difference between a branch and a subsidiary in Portugal. The real differentiating factor between them is the tax efficiency of repatriation of profits. Dividends are subject to a withholding tax, transfers of branch profits are not. Other differences include the following:
- A subsidiary is a separate legal entity, while a branch is not a legal entity distinct from its parent;
- The liability of the shareholders of a company is limited to the amount of the capital. In the case of a branch, the liability of the head office is the amount of its net worth;
- Minimum numbers of shareholders (acting on their own behalf or on behalf of other persons or companies) are necessary for the incorporation of a company. Only a representative of the parent company is needed to register a branch;
- Costs of registering a branch are broadly similar to those for incorporating a company although notary fees and fees for registration of the articles of association are not applicable.
The choice between a branch or a legal entity in Portugal may be influenced by commercial reasons. In general, a legal entity is perceived as a stronger and more lasting presence in the country than a branch.
FORMS OF COMPANY
The most common forms of a company are:
- The private limited liability company ("sociedade por quotas" or "Lda")
- The corporation ("sociedade anónima" ou "SA")
PRIVATE LIMITED COMPANY
In practice, a private limited liability company is the most widely used type of company. It is a convenient form of organization for small and/or closely-held enterprises, due to its less complex administrative and supervisory structure. The main characteristic of a Lda. is the fact that its partners are liable not only for their own contributions but also, jointly with the others, for all contributions necessary to pay up the full amount of the company's share capital.
Members of a Lda. have "quotas", rather than shares, and the quotas are described in the Articles of Association, rather than being represented by share certificates. "Quotas" can be transferred only by public deed.
A Lda. requires in general two members. However the setting up of private limited companies with a single quotaholder is also permitted. The quotaholder may be either an individual or a legal entity resident or not in Portugal but not another Portuguese private limited liability company with a single quotaholder.
The capital of a private limited company may not be less than 5.000 €. Contributions of labour in place of cash are not permitted. A Lda. is required to maintain a legal reserve, intended to protect third parties and to cover any losses, so that a minimum of 5% of profits must be appropriated to the reserve each year.
A corporation has a more complex administrative and supervisory structure. It is an appropriate form of organization for large and widely-held enterprises. It requires a minimum of five shareholders.
This type of company is essential in Portugal for companies wishing to have their shares listed on the Stock Exchange. The main characteristic of a SA is that its shareholders are liable only for the amount of their own contributions necessary to pay up the shares subscribed by them.
The minimum capital required is 50.000 €. Contributions of personal services in place of cash are not allowed.
The incorporation of an SA can be made by means of a public or private subscriptions.
Shares may be of nominative or bearer form. Bearer shares may be converted into nominative and vice-versa. Shares can also be ordinary or preference. Two types of preference shares are permitted, non-voting preference shares and redeemable preference shares. Redeemable preference shares may be redeemed with or without reduction of share capital.
There are no "partnerships" as such in Portugal except in selected professions (lawyers, auditors, etc).
COMPLEMENTARY ING OF ENTERPRISES - ACE
An ACE is formed by s of individuals or companies with the purpose of bettering their financial results or the profits of their economic activity. An ACE must be incorporated as a separate legal entity by means of a notarized deed. They are quite common in Portugal.
There are some restrictions imposed on their activities; for example, ACEs cannot own real-estate which is not purchased for business purposes, or acquire shares or quotas in other companies and ACEs.
The consortium is an unincorporated joint venture agreement, concluded in writing between two or more individuals and/or corporate enterprises which commit to carry out jointly certain business activities or to contribute certain assets for the purpose of developing or completing a construction or other project. They are quite common in Portugal.
EUROPEAN ECONOMIC INTEREST ING - EEIG
The purpose behind the creation of this new entity is to provide a common legal form through which business can be conducted by companies or individuals anywhere in the EU Member States.
The EEIG is specifically intended to facilitate cross-border co-operation between business in different parts of the EU by giving them the freedom to work together within the common framework of community regulations rather than the narrow and diverse constraints of national company law. The aim is that an EEIG will be subject to the same basic legal regime wherever it is formed in the community.
An EEIG is meant to play an ancillary role and to have as its purpose "to facilitate or develop the economica activities of its members and to improve or increase the results of those activities; its purpose is not to make profits for itself".
Decree-Law nº 495/88 of December 30 established a new type of company designated Sociedade Gestora de Participações Sociais, more commonly known in its abbreviated form of SGPS.
An SGPS may be incorporated as a corporation or a private limited company, but is subject to additional restrictions.
The main restriction on an SGPS related to its corporate object. Its Articles of Association must state that its sole object is the management of a portfolio of holdings in other companies, as an indirect means of carrying on an economic activity.
However, an SGPS may also make loans and provide technical, administrative and management services to these companies.
An SGPS may not engage in any of the following operations:
- Buy property, other than that required for its own offices or for the offices of the company in which it holds shares or quotas;
- Dispose of any of its participations within a year of their acquisition, unless by exchange or where the disposal proceeds are invested in other participations meeting the same requirements or if the buyer is a company controlled by the SGPS. The term controlled means holding more than half of the share capital and voting powers or being able to appoint more than half of the board.
- Lend to anyone other than companies in which it has a controlling interest or it is a shareholder.
An SGPS may exclude from its taxable income 95% of dividends received from resident companies. Unlike other companies, it is not required to hold a minimum of 25% in the share capital of these companies for at least two years or since incorporation to qualify for such favourable treatment.
Capital gains of an SGPS on the sale or exchange of its shares or quotas may qualify for reinvestment relief if the sales proceeds are reinvested in other shares or quotas or in government securities until the end of the second year following that of the disposal.
The general regulations governing accounting records to be kept by traders are contained in the Commercial Code, which requires all traders to keep orderly accounts appropriate to their commercial activity, including inventories and balance sheets, a journal, a general ledger and a register of copies of correspondence issued. These books must be kept for a ten year period.
Companies engaged in business must also keep one or more minute books in which all resolutions adopted by the Shareholders Meeting and other governing bodies of the company must be recorded.
Before use they must be certified as follows:
- Inventories and balance sheets and journals, courts ledger, minute books and register of correspondence issued(certification of the commercial character of the presenter by the tax authorities; payment of stamp tax; terms of opening, numbering and signature of all pages by the board of directors).
The maximum delay permitted in setting up these books is 90 days.
PUBLICATION OF FINANCIAL STATEMENTS
The publication requirements for all companies that are SA's and Lda.'s are the same. The following must be published:
- The balance sheet, profit & loss account, and notes to the financial statements;
- The resolution of the general meeting approving the accounts and the distribution of profits;
- The report of the Board of Directors;
- The report of the Statutory Auditor (if required);
- The report of the Audit Board, where one exists.
These documents must be deposited at the Commercial Registry, which arranges for their publication in the Official Gazette. The costs of publication are borne by the companies.
Most Portuguese companies are required to be audited by a qualified statutory auditor ("Revisor Oficial de Contas" abbreviated to ROC) who is a member of the Audit Board where a company has such a body.
SA's and SGPS's must be audited. Lda's are audited only certain limits are exceeded in two successive years (total assets, turnover and average number of employees).
The audit is carried out in accordance with the auditing standards issued by the Auditor's Institute. These standards are close to internationally accepted auditing standards. Audits carried out by international audit firms, in parallel with the statutory audit, are becoming increasingly common in Portugal.
Through the foreign investment contractual regime, the Portuguese State may grant, after negotiation with the promoters of a project, financial and/or tax incentives provided for in the legislation with EU approval and funding. For that effect an investment contract is entered into between the foreign investor and the Portuguese Government.
Investment projects that are considered of a structural nature and of special interest to the national economy, contributing significantly to the development and promotion of innovation, and to the modernization of the Portuguese economy may qualifly for this regime.
There are no restrictions to the entry of foreign capital, albeit always respecting public order, public safety and health, and complying with the legal conditions and pre-requisites set in the applicable legal code. Foreign investors are not required to have a national partner.
Companies with Foreign Capital – term applied when the combined shares in a company held by a single or collective non-resident exceeds 20% of the Company Capital, or when more than 10% of the Company's Capital is held by a single or collective, non-resident entity.
There are no limits as to the sectors in which a foreign company may invest in. There are specific restrictions for both national and foreign investments made in sectors under public administration (water supply, post, rail network, marine port concessions), where private investors may operate but only by concession contract.
There are no limitations on the repatriation of profits or dividends earned in Portugal. In fiscal terms, there's a tax exemption for profits earned by a national resident put at the disposal of the foreign holding company (EU member country origin), when the foreign company has held a minimum 25% share in the company for the past 2 years.
INCORPORATION OF A COMPANY IN PORTUGAL
The following steps must be taken in order to incorporate a Portuguese company:
- Obtain the Certificate of Approval of the company's name from the National Registry of Collective Persons (RNPC);
- Obtain from the RNPC the provisional identification card of a collective person;
- Sign the deed of Incorporation or Association in the presence of a notary after the finalization of the Articles of Association;
- File the declaration of commencement of activities with the local tax office for the area of its head office;
- Registration at the commercial registry ("Conservatória do Registo Comercial");
- The Memorandum of Association must be published in the official gazette "Diário da República". This is the responsibility of the "Conservatória do Registo Comercial" which must also ensure its final registration with the RNPC and its publication in a national newspaper;
- The "Conservatória do Registo Comercial" ensures that the final registration takes place at the RNPC which then issues the final identification card of a collective person (NIPC).
On average, the incorporation of a Portuguese Company may be done within a period of two months.
1. Define company's principal activity & corporate name
Shareholders wishing to incorporate a company in Portugal must apply for a corporate name certificate at the National Registry of Companies – Registo Nacional de Pessoas Colectivas - < http://www.rnpc.mj.pt/ ">.
The application for a corporate name must respect the following requirements:
- Proposed corporate name and two other alternative corporate names must be indicated;
- The corporate name:
Must reflect the activities that the company intends to perform;
Cannot be misleading regarding the activities it proposes to undertake;
Cannot be confused with another corporate name already registered with the Registry.
All registered names benefit from the exclusivity principle in the Portuguese territory.
After the approval of the corporate name, the Registry will issue a certificate of registration together with a provisional tax registration card.
2. Request a Public Registry Deed
Establish a date for the Public Registry of the company at the Notary Office, with the following documents:
- Certificate of company admissibility;
- Provisional Collective Person Identification Card Number;
- Photocopies of the respective signing entities identity papers ;
- Official Auditor report for the different asset participations;
3. Celebrate the Public Deed
Draw up the Articles of Incorporation and execute the company deed: these must be signed and sealed by public notary. The deed can be replaced by a private document if the company to be incorporated is owned by one person only, whose share capital is entirely paid-up in cash or in assets.
4. Declare Start of Activity
Once the incorporation deed has been executed, register the activity of the company at the local Tax Authorities, signed by the auditor responsible for the company accounts. Declare the start of the company's activity at the Government tax office (DGCI – Direcção-Geral dos Impostos) - www.dgci.min-financas.pt/siteinternet .
5. Commercial Company Registrar
- Commercial Registry (Registo Comercial),
- publication in the Portuguese Official Journal (Diario da Republica)
- register at the RNPC – Nacional Registry for Collective Entities.
6. Social Security
The new company must also register with the regional Social Security office.< http://www.seg-social.pt/ ">
7. Register the company
at the Department for Trade & Competition or at the corresponding Regional Directorate of the Ministry of Economy.
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