Business Entities in Portugal

In this article we will explore the types of different business entities that can be formed in Portugal and its associated laws. It is important to understand these different type of entities, to make sure that when starting a company. We must choose a type that will be the best for that person or group of individuals.

The following are the different types of business entities:

 

Public Limited Company

  • There should be at least 5 shareholders.
  • Either individuals or legal entities can be shareholders
  • A minimum amount or capital of € 50,000 is required
  • In a public limited company, the total capital is divided into shares
  • The liability of the shareholders is constricted to the share value (total shares).

 

Private Limited Liability Company

  • A Private limited liability company should have at least 2 shareholders.
  • There are no requirements for minimum capital.
  • As in public limited company, the total capital is divided into shares.
  • As in public limited company, the liability of shareholders is limited. Each of the shareholder has limited liability that covers his/her share value and the remaining company’s debt is jointly shared among all the shareholders.
  • As the shareholders are protected with liability and there is no requirement for the amount of capital, this is the most common form of business entity in Portugal.

 

Partnership Company

  • As the name suggests the partnership company should have at least 2 shareholders.
  • There are no requirements for minimum capital.
  • All the shareholder’s personal assets are liable, which means that partners in a partnership company have unlimited liability.

 

Limited Partnership Company

  • A limited partnership company should have at least 2 shareholders.
  • There are no requirements for minimum capital.
  • In a limited partnership company, there exists at least one shareholder who bears unlimited liability and his/her personal assets are liable. However, the rest of the other shareholders have limited liability which covers their individual share value.

 

Sole Proprietorship

  • This is the simplest type of business entity and is very easy to form.
  • The owner in a Sole Proprietorship bears unlimited responsibility which means if the company goes bankrupt his/her personal assets are also liable apart from the business assets.
  • There is no requirement for minimum capital and transfer of ownership is really difficult as most of the time, the company ends with the individual.

 

Single Shareholder Limited Liability Company

  • This is like Sole Proprietorship. However, the owner can have partners that can hold the total capital of the business.
  • If the company does not have multiple partners, Single Shareholder Limited Liability Company has limited liability.
  • The shareholder is liable only to the capital that he/she put into and the capital be a minimum of €5,000.

 

Individual Limited Liability Establishment

  • This is like Sole Proprietorship where in there is a single owner operates the business.
  • The key difference though is that there is a clear distinction between individual assets and company assets.
  • A minimum capital of €5,000 is required and the individual is responsible to pay up at least €3,333.33.

Now that we know the characteristics of each of the business entities. Let’s take a look at the corporate taxes and legal and regulatory environments.

 

Corporate taxes

The corporate tax rate is 21% on the net profit of the business. In addition to this, there are surcharges that may apply. Tax incentives are applied to certain special type of businesses. If the company’s registered office address is in Portugal or its effective place of management is in Portugal, they are subject to the Portugal’s corporation tax on their worldwide net profits.

The annual corporation tax return has to be filed before the end of the 5th month following the financial year end. The financial year end is the 31st of December by default.

 

Legal and Regulatory environment

  • As Portugal is a member of EU, the financial reporting should adhere EU laws.
  • The most important legal requirements for Public limited companies and Private Limited Liability Companies is that the constitution of legal reserve equal to 5% of net income until it reaches an amount equivalent to 20% of capital.
  • It is extremely important to have the company’s books audited by an external auditor.
  • The books should be in Portuguese language the currency used should be in Euros.
  • It is mandatory for all Public limit liability companies to have an annual audit.
  • For Private limited companies, they are required to be audited annually if they exceed two of the following three thresholds:
    • Net turnover of 300,000.
    • Total assets of 1,500,000.
    • Average employees of 50 for the year.
  • The accountants and auditors are subject to ethical requirements.
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