DURING 2006 CONSIDERABLE changes have taken place within Portuguese corporate law. These changes highlight the need to eliminate a great number of bureaucratic barriers that effect corporate activity and consequently Portuguese economic development.
In fact Portuguese corporate law was based upon a system of duplicate or parallel control of certain corporate operations such as company incorporation, amendment of company by-laws, capital increase, change of registered office or social scope, dissolution, merger or spin-off.
In accordance with past legislation, all of the referred procedures had to be accomplished before a public notary and were subject to registration by the Commercial Registry Office. Both entities had legal authority. However, authorities have recently acknowledged that this system has been too burdensome from the perspective of both the economic agents and public administration and did not promote legal confidence in corporate affairs.
It has been the government’s under standing that the role of administrative authorities in these matters should be to promote legal confidence in company activities and corporate transactions rather than to act as a stumbling block to the dynamic synergies of economic agents.
In addition, it was also considered necessary to allow corporate agents to take advantage of the new technologies for data conveyance, both for time saving and for easier access to information such technologies may provide.
In this context, the Portuguese government has approved several laws to simplify and modernise company activities.
The first measure took place with the publication of Decree-law no. 111/2005, July 8, which established the “incorporation of a company in one hour” procedure. According to this new law, it is possible to incorporate a company in Portugal within one hour.
This new procedure consists of a ‘one-stop-shop’ that provides for all services required for the incorporation of a company, and where several preapproved by-laws and company names are made available. Within one hour the new company is incorporated and ready to perform its legal activity.
According to statistics, by the beginning of October 2006 more than 12,700 companies were created under this new regime proving that the ‘company in one hour’ mechanism has been very successful.
Also, the referred Decree-law established that from January 2006, all mandatory publication of corporate acts, as notices and summons, as well as commercial registry acts, would no longer take place in the Official Gazette but on an internet site available to the public. These measures not only eliminated most bureaucracy, but also made both the publication procedures and the access to such information faster and easier for all corporate agents.
However, it was Decree-law 76-A/2006, March 29, entered into force in June 2006, which has provided for the most important of all legal amendments in the context of the so-called ‘Simplex Program’. This Decree-law, which focuses entirely on modernising criteria, introduced fundamental changes to corporate law.
Notarial and registry acts
With respect to notarial and registry acts, the changes introduced by this law are primarily concerned with the legal form of the corporate acts and with a new kind of commercial registration.
Previously, operations such as incorporation of a company, amendment of company by-laws, capital increase, change of registered office or social scope, dissolution, merger or spin-off were required to be performed through a public deed. Currently, except for operations involving the transfer of immovable assets, all such operations may be executed by means of a private document, namely the minutes of a general meeting of the company. Therefore, such operations are no longer subject to a double control, but only to the control of a single public entity, the Commercial Registry Office.
Also, several corporate acts, namely those regarding participation in the capital of limited liability companies and the respective holders, are now registered only through the filing of a registry form, since any supporting documentation thereto is no longer required.
As a general consideration, it is important to note that, although the law has reduced public authority over the referred operations, the means of control have not decrease. The new law has transferred part of the responsibility for the registry to the company itself. The company is now responsible for performing and holding all documents required for the execution of the referred corporate operations within the required legal terms, while the registrar’s role in the registration procedure became much less demanding.
A special reference must also be made to administrative winding-up procedures and to merger and spin-off operations.
With regard to winding-up procedures, since 30 June 2006, the cases of dissolution and liquidation that were previously required to be performed before the courts could be carried out directly in the registry office, as long as certain requirements are met.
Also, the new law has implemented the process of ‘liquidation in one hour’. According to this new process, where all shareholders agree unanimously on the dissolution of the company, and if no assets or liabilities are to be liquidated, it is possible to file for the liquidation with the Registry Office and a special administrative procedure will run in one hour.
Regarding merger and spin-off procedures, the previous regime provided for a considerable number of corporate and registry acts and publications enacted by both companies involved. This new legislation eliminated some of those interim acts, and therefore such operations became less onerous, time-consuming and much easier to perform.
It should be noted though, as mentioned above, all operations must be supported by the necessary documentation and prepared in accordance with Portuguese law.
With respect to corporate governance, some amendments regarding the participation of shareholders and directors in company management, particularly those long distance have been made.
The new legislation allows for the implementation of new technologies in the management of companies which should lead to an increase in the company’s performance.
One of the main advantages is the ability to hold meetings of the corporate bodies through electronic or video conferencing systems, allowing meetings to be held by several persons located in any part of the world. Also, the use of new technologies will now permit a company to publish corporate information, such as the summons of the general meetings of the company, by electronic mail with a read receipt as long as this procedure is agreed upon by the shareholders.
Taking advantage of new technologies, such as the internet or simply state-of-the art teleconferencing or video conferencing systems, will provide for more flexibility in a globalised era. In any case, the law states that corporate bodies are responsible for the authenticity of the statements and the security of the communications.
Also, in what concerns representation on corporate bodies but on a different level, according to the new legislation the by-laws are now prevented from conditioning the choice of the representative of a shareholder
in a general meeting. This fact will broaden the involvement of third parties in the company activity.
All the referred amendments will allow foreign shareholders, for example, to participate more often and more actively in a company’s activity, namely at the general meetings even if at a distance, whether by the increasing technological means available or by means of a broader range of representatives.
On the other hand, some significant amendments were made to corporate governance models regarding public limited companies.
Prior to these amendments Portuguese corporate law comprised grosso modo two governance structures regarding public limited companies: the Latin model, consisting of a board of directors and a supervisory body or a single auditor; and the German model governed by an executive board of directors, a supervision board and a single auditor.
The recently approved amendments have introduced the Anglo-Saxon model, which constitutes a third possible governance structure. This new model provides for a board of directors, an audit committee and a single auditor. According to this structure, the members of the supervisory body are simultaneously members of the board of directors, however, being limited in the exercise of executive tasks. As a consequence, the existing incompatibility regime of the members of the supervisory body has been extensively changed.
This new model not only introduces a more familiar structure to a large number of
foreign investors in Portugal, by giving local corporate governance a more recognisable configuration, but also presents a way to establish a tighter relationship between the auditing and managing body, which will bring benefits to more demanding organisations.
Finally, certain amendments were also introduced regarding the responsibility of managers and directors. In fact, managing officers are now subject to new duties of care, which means that they are required to show availability, technical competence and knowledge of the company’s activity adequate to their tasks, and duties of loyalty to act in good faith and in the company’s best interests.
However, a new rule to mitigate the exercise of these new responsibilities was also implemented. Managing responsibilities are now subject to a ‘business judgment rule’ according to which management duties shall be deemed fulfilled as long as managers or directors have acted in an informed manner, free from any personal interest and in accordance with business rationality criteria.
The amendments pointed out in this article are part of the ‘Simplex Program’ which is still in progress.
In fact, according to Decree law 125/2006, June 29, it is now possible to proceed with an incorporation of a company online. All the information and documentation required is introduced in the respective website through electronic authentication and electronic signature, both procedures already duly approved and in force.
According to the government, at the end of the year the electronic system of commercial registry shall enter into force. This system will include the ability to file registrations by electronic means and also to have certificates of the commercial registry permanently available on-line.
Furthermore, it is also expected that in 2007 the ‘unified corporate information system’ will be implemented. This means that it will be possible to file registrations, request certificates and obtain the respective supporting documents in any commercial registry office in national territory, regardless of the location of the registered office of the company.