At a time when many businesses are seeking to simplify their structures and attract investment, interest is growing in a legal mechanism known as the transformation of companies.
Pursuant to Article 130 of the Portuguese Companies Code (“CSC”), a transformation consists of a change in the company’s corporate form, allowing a company incorporated under one of the types provided for by law (single-member private limited company, private limited company or public limited company) to subsequently adopt another. A transformation does not entail the dissolution of the company, unless the shareholders expressly resolve to dissolve it. In practical terms, the company remains the same legal entity; only the corporate form under which it operates is amended.
Despite its usefulness, a transformation is subject to clear limitations. The law sets out impediments which, if applicable, prevent the transaction from proceeding: (i) share capital not fully paid up or contributions not made; (ii) net assets lower than the aggregate of the share capital and the legal reserve; (iii) opposition by holders of special rights which cannot be maintained following the transformation; and (iv) in the case of public limited companies, the existence of convertible bonds which have not yet been fully redeemed or converted.
The management body (management/board of directors/sole director) must prepare a reasoned report setting out the legal and economic grounds for the transaction and confirming that the company’s financial position has not changed materially since the balance sheet used as reference; where changes have occurred, these must be identified.
This report must be accompanied by: (i) the balance sheet on which the resolution will be based (the balance sheet for the last financial year, if closed and approved within the preceding six months, or a special balance sheet) and (ii) the draft articles of association/bylaws under which the company will operate following the transformation.
Where the company has a supervisory body, the draft documentation must be submitted for an opinion.
If there is no supervisory body (as is often the case with private limited companies), the project must be reviewed by a Statutory Auditor (Revisor Oficial de Contas – “ROC”), although in certain cases such review may be waived by unanimous shareholders’ resolution, expressly recorded in the minutes.
In a transformation from a private limited company to a public limited company, additional requirements apply: if the share capital is below the statutory minimum for a public limited company (EUR 50,000), a capital increase must be approved; and if the number of shareholders is below the minimum required for a public limited company, new shareholders must be admitted in order to meet such minimum.
The general meeting must approve the balance sheet and the reasoned report, verify that no legal impediments apply, approve the draft bylaws/articles of association and appoint the corporate bodies for the first term of office.
Conversely, in a transformation from a public limited company to a private limited company, the process is broadly similar, but with a critical difference: a favourable ROC report is always mandatory and cannot be waived. The shareholders’ resolution must include approval of the balance sheet, the reasoned report and the favourable ROC report, as well as approval of the draft bylaws/articles of association and the appointment of the company’s managers.
Following the shareholders’ resolution, the transformation must be registered with the Commercial Registry. The filing typically includes the minutes of the resolution, any name/firm admissibility certificate (where applicable), the balance sheet and corresponding approval minutes (if not already included in the transformation minutes), the reasoned report, the favourable ROC report (where applicable), updated bylaws/articles of association and, where relevant, acceptance statements from the supervisory body of the transformed company (where the resulting entity is a public limited company).
Belzuz Abogados, S.L.P. – Portuguese Branch is an international law firm headquartered in Madrid, with offices in Lisbon and Oporto, and is available to advise companies, investors and international groups on corporate transformation processes in Portugal, including the analysis of legal requirements and impediments, preparation of corporate documentation, support in general meetings and coordination of all registry filings required to implement the transaction.