Business Entity Formats
Besides the fairly unusual EU legal formats, such as the Societas Europaea (SE) or the European economic interest grouping (EEIG), which must have members in at least two EU member States, the main Portuguese business entity formats are as follows.
SOCIEDADE POR QUOTAS (LDA)
The Sociedade por quotas (Lda) is by far the most common type of business entity. This is a private limited liability company having the share capital divided into “quotas” of at least 1 euro each. There is no minimum capital requirement, but it must have a minimum of 2 quota holders. The transfer of quotas is subject to registration with the Commercial Registry. An Lda may at any time elect to “upgrade” to an SA (see below). Should an Lda have a sole quota holder for more than one year, it must “downgrade” to a Unipessoal Lda (see “sole trader” below).
SOCIEDADE ANÓNIMA (SA)
The Sociedade Anónima (SA) is the second most popular legal format. It is a corporation/public limited company with a minimum capital of EUR 50,000, at least 30% of which must be paid up on incorporation. Capital is represented by freely transferable shares, which may be issued to the bearer, and, except where the founder is a non resident company, there must be an initial number of shareholders of not less than 5. The SA is the most demanding entity in terms of regulatory compliance and, irrespective of size, its accounts have to be audited annually by a certified auditor (Revisor Oficial de Contas), a requirement that only applies to other business entities in case they exceed a certain size or have a regulated activity (e.g. financial). The adoption of this format is compulsory for a company intending to be listed on the stock exchange.
HOLDING COMPANY (SGPS)
Where an Lda or an SA is essentially a holding company, subject to applicable regulations it may adopt the additional legal status of a regulated holding company, called Sociedade Gestora de Participações Sociais (SGPS). The advantages of this legal status lie essentially in the tax benefits it confers.
REPRESENTATION OF NON-PORTUGUESE ENTITIES
Besides the local subsidiary company, the legal format of the representation in Portugal of a foreign entity depends on the business activity it intends to have in this country, as follows.
Except for residents of EU member countries (or EEA countries that have agreed to EU-type tax co-operation), it is legally mandatory for a non-resident entity that owns property in, or derives regular income from, Portugal but has no permanent establishment in the country to appoint a resident tax representative (representante fiscal).
A representative office (escritório de representação) is the registered local presence of a non resident business entity, for example for marketing purposes, but not carrying on any business transactions.
The branch (sucursal) of a non resident business entity is a permanent establishment that carries on a business activity in Portugal, its registration being mandatory should any such activity be carried on (or intended to be carried on) for more than one year. It is a local extension of the represented business entity, without separate legal personality, the management of the branch being performed under delegation of powers by the owning entity. It is in practice treated as a domestic company as regards taxation and compliance; but unlike other jurisdictions there is no requirement to file the “parent’s” accounts in Portugal, and unlike a domestic company the distribution of profits by the branch to the “parent” is not subject to any taxes. The foreign entity having a Portuguese branch is a popular structure for some types of investment, such as in real estate - see this article.
SOLE TRADER AND INDEPENDENT PROFESSIONAL
A sole trader or independent professional may choose among one of 3 business entity formats: the Unipessoal Lda, which is essentially an Lda having a single quota holder; the Estabelecimento Individual de Responsabilidade Limitada (EIRL), which is a sole proprietorship in which the liability of the proprietor is limited to the assets allocated to the business; and the sole trader or independent professional having unlimited liability.
Partnerships may take on the format of a general partnership with unlimited liability of all members (Sociedade em Nome Colectivo), which is tax transparent; or of a partly limited partnership, either having no share capital (Sociedade em Comandita) or having a share capital (Sociedade em Comandita por Acções), which must have at least one unlimited partner (the general partner, called sócio comanditado, who contributes goods or services and takes on the management) and one or more limited partners (sócios comanditários), who contribute capital and have no management responsibilities.
Certain professions, such as lawyers and certified auditors, may adopt profession-specific, tax-transparent, forms of partnership.
A non-incorporated general partnership having a general partner and one or more limited partners is called an Associação em Participação, an interesting feature of which is that the profit share of the limited partner is fiscally treated as a dividend. This type of partnership, which is not subject to registration, is formed by a private agreement under which a general partner (Associante) takes on the partnership management and has unlimited liability, and the limited partners (Associados) contribute capital, are entitled to profits and may or may not assume responsibility for losses, in accordance with the agreement.
Joint ventures generally take on the form of either a consortium, which may have limited liability subject to certain legal requirements, or of an economic interest grouping (Associação Complementar de Empresas or ACE), which has unlimited liability.
Another form of association is the cooperative, an independent legal entity having limited liability, which may be freely established and whose aim must consist in meeting the economic, social or cultural needs of its members and not to seek profit for itself.
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