New Corporate Law Amendments for Limited Liability Companies in Portugal
Portugal starts the 2011th with new amendments to corporate law: there is no more minimum share capital for private limited liability companies and depositing the determined share capital not shall be completed before the initiation of the economic activity but rather by the end of the first year of operations.
In the very end of last year, on the 30th of December, 2010, the Council of Ministers of Portugal approved a Decree-Law which continues implementation of the ambitious bureaucracy simplification programme conceived by the actual Government and adopts new measures further simplifying company formation procedures in Portugal. The actual requirement of the minimum share capital to establish a limited liability company actually is EUR 5.000 was abolished and now members of association will have the right to determine the share capital of their company without any restrictions.
To be more specific, the new rules apply to limited liability companies (Sociedade por Quotas) and individual shareholder limited companies, or limited liability sole proprietorship companies (Unipessoal Limitada). The minimum share capital requirement has however been maintained for public limited companies (Sociedade Anónima) and remains EUR 50.000.
The advantage of the abolishment is long discussed and proven. On one hand, an established share capital threshold is often an obstacle for individual entrepreneurs and leads to fewer occupational choices, especially in case of young people without sufficient financial funds. This is particularly obvious when we talk about services or any home based business where initial monetary investments are rarely necessary. On the other hand, the share capital is no more a safety measure against insolvency and thus, does not provide a reliable guarantee for creditor interests' protection. Indeed, the minimum capital requirement in many countries is so low (for instance, ca. EUR 1.265, in Poland) that it is difficult to see how it can meet the most measured financial and operational risks of a company in the modern business life. Further, it often happens that the subcapitalization rate of companies with remarkable share capital is higher than the liabilities proportion of small companies. Therefore, creditors employ other mechanisms to protect their interests rather rely on the authorised capital.
The other very helpful amendment is that the share capital will have to be deposited not at the moment of the company formation as required before but by the end of the first year of operations. The two introductions certainly provide a relief of the administration burden for newly established companies, especially when taking into account quite impressive figures: there are slightly over 500,000 companies actually active in Portugal and more than 90% of them are medium, small and micro enterprises,
This development in the share capital policies in Portugal is in line with analogous practices in a row of other countries: the UK, Germany, France, USA, and Japan, to name a few. Bulgaria also could join this group with their symbolic amount of approx. EUR 1,00.
Another Decree-Law, approved on the same day of the 30th of December, 2010, revokes approximately two hundred legal acts, in addition to four hundred legal acts already revoked in September. This is a programmed advancement in the Simplex programme and in its sub-programme Simplegis, in particular, aiming for a less complicated and more transparent legal system in Portugal. Among its objectives is elimination of unnecessary formalities, procedure simplification or introduction of new services at one-stop-shop or on-line.
Successful examples of this process could be abolition of obligatory deeds for a number of civil and corporate acts, reduction of deadlines, introduction of internet based services and simplified information system for companies (IES), and availability of Corporate and Land Registry certifications on-line. The initiatives On the Spot Firm (Empresa na Hora) and One-Stop Shop for Land Registry (Casa Pronta) were distinguished by the World Bank Group in the report Doing Business-2011 as significant success of Portugal in improving its ranking for business environment conditions.
The main goal of the new rules on the share capital is to promote small and medium businesses. A very wise and welcome step in the conditions of such a fragile economy as the Portuguese is at the moment. However, it would be misleading to expect that mere share capital threshold elimination will boost the country. Tackling business environment restrains in general and taxing in particular are the next big steps that Portuguese businesses expect from their Government.
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