Types of Companies in Portugal
The principal form of limited liability organisation is:
- The private limited liability company or quota company - Sociedade por Quotas - Lda.
These are the most common corporate formations in Portugal for both foreign and national investors. However, other forms are possible and can be used, such as non-limited liability firms, or mixed types of limited and non-limited liability companies, or partnerships.
The Sociedade An-nima is appropriate for larger and/or widely held enterprises and we concern ourselves here with the more common limited company suitable for small and medium sized enterprises.
The setting up of any corporate entity in Portugal depends upon two main steps:
- The signing of the articles of association at a notary.
- And commercial registration of the same.
Private Limited Company - Lda
In practice, a private limited liability company is the most widely used type of company. It is a convenient form of organisation 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.
Holding Companies
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.