Company Directors in Portugal: Key Duties and Liabilities

The duties of company directors in Portugal are not limited to obligations towards the company itself. They also extend to its creditors, shareholders and even third parties.

First and foremost, it is important to distinguish between the management of private limited companies (sociedades por quotas – arts. 197 and following of the Portuguese Company Code – Código das Sociedades Comerciais - CSC) and public limited companies (sociedades anónimas – arts. 271 and following of the CSC). The former are managed by one or more managers (gerentes), while the latter are managed by a board of directors (conselho de administração).

Some of these duties may appear to be in tension with each other. On the one hand, directors must manage the company prudently and carefully, always acting in its best interest. On the other hand, profit generation, the ultimate objective of a company, inevitably involves taking risks.

An unavoidable duty is that of management, which entails overseeing and promoting the company’s business. Equally important is the duty of legality, inherent to the management function, which requires ensuring the company complies with its legal obligations and upholds its rights.

The law provides for a wide range of specific obligations, among which the following stand out:

• Duty to attend meetings of the management body (arts. 393, No. 1 and 410 – CSC);
• Duty to prepare the management report, annual accounts and other financial documents (art. 65 – CSC);
• Duty to present financial statements to the supervisory body and statutory auditor (arts. 65, No. 1; 451, No. 1 and 453, No. 1 – CSC);
• Duty of non-competition and avoidance of conflicts of interest (arts. 254 and 398, No. 3 to 5 – CSC);
• Duty to convene a general meeting in the event of a loss of half of the share capital (art. 35, No. 1 – CSC);
• Duty not to implement shareholder resolutions that entail unlawful distribution of assets (art. 31, No. 2 to 4 – CSC);
• Duty to register approved mergers with the Commercial Registry (art. 111 – CSC);
• Duty not to act beyond the company’s corporate object (art. 192, No. 2 – CSC);
• Duty to file for insolvency when legally required (art. 18 - Insolvency and Corporate Recovery Code – Código da Insolvência e da Recuperação de Empresas - CIRE);
• In public limited companies (SAs):

1. Duty not to conduct business with the company (art. 397 – CSC);
2. Duty to disclose to the company any holdings of shares or bonds and related transactions (art. 447 – CSC);
3. Duty to maintain confidentiality regarding non-public information that could influence securities value (art. 449 – CSC).

Fundamental Duties of Directors – Care and Loyalty

Among all duties, two stand out as fundamental: the duty of care and the duty of loyalty:

• The duty of care (art. 64, No 1, a) – CSC) requires directors to act diligently, prudently, and in the company’s best interest. They must make informed decisions, monitor the company’s structure and strategy, and calculate potential risks. A director acting on an informed basis, without personal interest, and guided by rational business judgment may invoke the business judgment rule as a defence mechanism against liability (art. 72, No. 2 – CSC);
• The duty of loyalty (art. 64, no 1, b) – CSC) requires directors to act in good faith, prioritising the interests of the company while also considering shareholders, employees, clients and creditors. It includes the duty of non-competition and the obligation to maintain confidentiality. Disloyal management occurs when directors pursue personal gain at the expense of the company or its stakeholders.

Directors’ obligations may also arise from the articles of association, contracts, or shareholder and management resolutions.

Failure to comply with these duties can have serious consequences. Directors may be held personally liable for damages caused to the company, shareholders, creditors or even third parties, and in some cases may face criminal liability.

The duties of company directors are vast and demanding, but they are essential to ensure sound and responsible corporate governance. For directors, investors and shareholders alike, understanding these obligations is crucial to protecting companies, reassuring stakeholders and promoting a fair and competitive corporate environment.

If you would like to understand how directors’ duties and liabilities under Portuguese corporate law may affect your company or your role as a manager,   please do not hesitate to contact us.