Incorporating in Portugal: What Founders Should Know About Share Capital

Tomás Melo Ribeiro | Lawyer

For any entrepreneur or corporation establishing a presence in Portugal, the decision on share capital ("Capital Social") is a foundational one. While recent legal reforms have created significant flexibility, particularly for limited liability companies, the amount of capital subscribed is far more than a legal formality. It is a strategic lever that impacts everything from market perception and creditor relations to operational viability.

This article explores the legal framework for share capital in Portugal and provides a strategic perspective on defining the right amount for your new venture.

What is Share Capital?

At its core, share capital represents the initial investment made into the company. Technically, there is a difference in terminology between a Sociedade Anónima (SA) and a Sociedade por Quotas (Lda): in an Lda, the holders of the social participations are referred to as partners (sócios), whereas in an SA they are called shareholders (acionistas). However, for the sake of uniformity throughout this insight, we will refer to them as shareholders.

Share capital constitutes the company’s initial equity and is recorded on the liability side of the balance sheet.

Legally, share capital serves two primary functions:

1. Guarantee Function: It acts as a primary buffer for the company's creditors. The capital is, in principle, "locked" within the company) and cannot be returned to shareholders except through stringent legal procedures.
2. Operational Function: It provides the company with the initial funds (or assets, in the case of non-cash contributions) required to commence operations, cover setup costs, and achieve initial milestones before it generates self-sustaining revenue.

This value is divided into participation units: quotas (quotas) for an Lda or shares (ações) for an SA.

Legal Requirements by Company Type

The Portuguese Commercial Companies Code (Código das Sociedades Comerciais - "CSC") dictates the minimum requirements, which differ significantly by company type.

1. Sociedade por Quotas (Lda) - Private Limited Company

This is the most common corporate form in Portugal, prized for its flexibility. Following major legal reforms, the previous €5,000 minimum was abolished.

• Minimum Capital: The law now allows for a minimum of €1.00 per quota. For a single-member company (Sociedade Unipessoal por Quotas - SUQ), the minimum capital can therefore be €1.00. For a multi-member Lda, the minimum would be €2.00 (one €1.00 quota per shareholder).
• Payment (Realização): While the capital must be subscribed, the law offers flexibility for its payment (discussed below).

2. Sociedade Anónima (SA) - Public Limited Company

The SA is designed for larger operations, often involving a wider shareholder base or preparation for public listing. Its requirements are, accordingly, more robust.

• Minimum Capital: The minimum share capital for an SA is €50,000.
• Payment (Realização): At least 30% of the value of cash contributions must be paid up upon incorporation. The remainder must be paid within the period defined in the articles of association, not exceeding five years. For contributions in kind, they must be fully paid up at the time of incorporation.

Beyond the Minimum: Defining the Adequate Capital

Herein lies the most critical strategic decision. While incorporating an Lda with €1.00 is legally possible, it is often commercially inadvisable. An "adequate" share capital should be determined by business needs, not legal minimums.

Key factors to consider:

• Market Credibility: A company with a share capital of €1.00 or €100.00 signals low commitment and financial fragility. This can be a significant disadvantage when dealing with suppliers (who may demand pre-payment), banks (when seeking credit lines), and international partners (who may view the company as non-substantial).
• Initial Funding (Cash Flow): The share capital should, ideally, be sufficient to cover the company's initial operational expenses—rent, salaries, professional fees, and equipment—until the business becomes cash-flow positive.
• Director Liability & Insolvency: If a company is incorporated with manifestly insufficient capital to even begin its intended operations, it can face immediate insolvency. This can, in certain circumstances, open the door to director liability. The Portuguese Insolvency Code (Código da Insolvência e da Recuperação de Empresas - "CIRE") provides for liability where insolvency was created or aggravated by "gross negligence" (culpa grave), and running a business with no capital could be argued as such.
• Financing: A robust share capital demonstrates shareholder commitment and improves the company's debt-to-equity ratio, making it a more attractive proposition for bank financing and private investment.

Key Legal Aspects to Consider

Beyond the minimum amounts, the nature and protection of the capital are governed by strict rules.

a) Types of Contributions (Entradas)

Share capital can be formed through:

1. Contributions in Cash (Entradas em Dinheiro): This is the most common form. The funds must be deposited in a bank account opened in the company's name before the final deed of incorporation.
2. Contributions in Kind (Entradas em Espécie): These are non-cash assets, such as real estate, machinery, intellectual property, or software. Contributions in kind may include not only assets subject to attachment but also assets capable of monetary valuation that are not subject to attachment. These may consist of real estate (ownership, usufruct, or use and enjoyment), registered movable assets such as vehicles, ships, or aircraft, and other movable assets including machinery, inventory, equipment, computers, and documents. Credits or claims, including loans to the company, guarantees such as mortgages or pledges, commercial or industrial businesses (either full or temporary transfer), and shareholdings in other companies can also be contributed in kind.
3. Valuation: As per Article 28 of the CSC, contributions in kind must be subject to a report by an independent statutory auditor (Revisor Oficial de Contas - ROC) to verify the asset's existence and value. This report is a crucial part of the incorporation documents. The auditor who prepared the report required under the preceding paragraph may not, for a period of two years from the date of registration of the company agreement, hold any office or perform any professional function in that company or in companies that are under its control or form part of its group.

b) Payment Obligations (Realização do Capital)

• Lda: The payment of cash contributions in an Lda can be deferred (postponed) by the articles of association, though it is generally advisable to pay it up. If deferred, the partners remain debtors to the company for the outstanding amount.
• SA: As noted, cash contributions must be at least 30% paid up, and contributions in kind must be 100% paid up.

c) The Principle of Intangibility & Loss of Capital

The law protects the share capital for the benefit of creditors. Directors cannot simply return capital to shareholders. Furthermore, directors have a specific duty to monitor the company's equity.

• Distribution of Assets: Distributions to partners (e.g., dividends) are only permitted from distributable profits and free reserves, as defined by Article 32 of the CSC.
• Loss of Half the Capital: This is a critical legal threshold. As per Article 35 of the CSC, if a general meeting determines that the company's net equity (Net Assets) has fallen below 50% of the share capital, the management has a duty to call a General Shareholders' Meeting. The shareholders must then decide whether to:

1. Dissolve the company; or
2. Remedy the imbalance by performing a capital decrease (to cover losses), followed by a capital increase, or simply a capital increase.

Failure to act on this provision can be a source of director liability.

Conclusion: A Strategic Foundation



The choice of share capital is one of the first and most significant strategic decisions an entrepreneur will make. While the Portuguese legal system offers remarkable flexibility for Ldas, this flexibility places the onus on founders and directors to act responsibly.

We advise clients to view share capital not as a legal hurdle, but as the financial foundation of their enterprise. A well-capitalised company is better positioned for growth, more resilient to challenges, and viewed as a more credible partner in the market. Balancing the legal minimums with a realistic assessment of the company’s business plan is the key to setting the stage for long-term success.

If you require tailored legal guidance on incorporating a company in Portugal or structuring its share capital, please contact our team.