With the start of each calendar year, companies in Portugal enter a particularly significant phase of their corporate life: the closing of the accounts for the previous financial year and their subsequent review and approval at the shareholders’ general meeting. Beyond complying with a legal requirement, this process represents a key moment for assessing the company’s financial position and defining future strategies.
In this context, the Corporate and Commercial Law Department of Belzuz Abogados, S.L.P. – Portuguese Branch sets out the main legal aspects associated with the process for approving the annual accounts and the regime governing the loss of half of the share capital, as provided for in the Portuguese Companies Code (Article 35 of the PCC).
Approval of the annual accounts: deadlines and legal duties
During the first months of the year, most commercial companies hold their annual shareholders’ general meeting, at which, among other documents, the management report and the accounts for the financial year ended on 31 December of the previous year are reviewed and approved.
Under the Portuguese Companies Code, these documents must be submitted to the shareholders and approved within three months of the end of the financial year, that is, by 31 March. This period is extended to five months in the case of companies required to prepare consolidated accounts or that apply the equity method.
It is the responsibility of the directors or managers to prepare the management report and the other accounting documents and to submit them for shareholders’ approval within the statutory deadlines. Where there is a supervisory body or a statutory audit, these documents must be reviewed in advance, allowing for the issue of the relevant report and, where applicable, the statutory audit certification.
Once approved, the annual accounts are subject to registration with the Commercial Registry, which is carried out through the filing of the IES – Simplified Corporate Information.
Failure to comply with these obligations may result in the imposition of fines on the members of the management body and, in more serious cases, in the opening of judicial inquiry proceedings against the company.
Loss of half of the share capital: concept and consequences
The analysis of the annual accounts may reveal significant situations of financial imbalance. Pursuant to Article 35 of the Portuguese Companies Code, a loss of half of the share capital is deemed to occur when the company’s equity is equal to or less than half of the share capital.
In such circumstances, the management body is required to convene — or request the convening of — a shareholders’ general meeting so that the shareholders may be informed of the situation and decide on the appropriate measures.
The notice convening the meeting must expressly include an agenda containing, at a minimum, the following options:
- dissolution of the company.
- reduction of the share capital to an amount not lower than the existing equity.
- contributions by the shareholders aimed at reinforcing the coverage of the share capital.
Furthermore, while the situation of loss of half of the share capital persists, the company is required to publicly disclose this circumstance in all its external activities, including contracts, correspondence, publications, announcements and websites, indicating the amount of equity shown in the most recently approved balance sheet.
Recovery measures
Depending on the circumstances, the financial recovery of the company may involve:
- an increase or reduction of the share capital.
- the conversion of shareholders’ loans into equity; or
- the implementation of a so-called accordion operation, among other legally admissible alternatives.
Belzuz Abogados, S.L.P. – Portuguese Branch is an international law firm, headquartered in Madrid and with offices in Lisbon and Porto, with solid experience in advising domestic and international clients on commercial and corporate law matters. The firm regularly assists companies and corporate groups in processes involving the approval of annual accounts, the reinforcement and recovery of equity, corporate reorganisations and capital structure restructurings, providing rigorous legal advice tailored to each client’s legal and strategic requirements.