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Unless something different is agreed in the articles of association of the company or a resolution is passed by a majority corresponding to 75% of the share capital in a general shareholders meeting called for such purpose, half of the yearly net profits, which are distributable, must be distributed to the shareholders.

The distribution of dividends that each shareholder is entitled to matures 30 days subsequent to the respective resolution, unless the shareholder agrees to a deferred payment. However, in exceptional company circumstances, shareholders may request an extension of said period for a further 60 days.

However, there is a minimum legal reserve that cannot be distributed to the shareholders. A minimum of a twentieth part of the net profits of each year of the company is destined for the legal reserve until it represents 20%of the share capital.

The articles of association may set up a higher minimum percentage and higher amounts to the legal reserve. Nevertheless, the legal reserve cannot be less than 2500 Euros.

 

The legal reserve may only be used:

  1. To cover the portion of losses in the balance sheet that cannot be covered by the use of other reserves;
  2. To cover the portion of losses from the previous year that cannot be covered by net profits from the present year or by the use of other reserves;
  3. To increase share capital.

 

Further to the mentioned legal reserve, there are some limitations to the distribution of dividends to the shareholders:

  • Company assets cannot be distributed to the shareholders when the equity capital, including the year net income, as shown in the approved accounts, is less than the sum of the share capital and the reserves or becomes less than this sum as a result of the distribution;
  • Dividends cannot be distributed to shareholders if they are necessary to cover accumulated losses or to form or reconstitute reserves required by law or by the articles of association;
  • Dividends cannot be distributed to shareholders if the incorporation costs or research and development costs are not completely paid, unless the amount of free reserves and retained earnings is at least equal to those costs not paid;
  • The reserves whose existence and amount does not appear explicitly in the balance sheet cannot be used for distribution to shareholders;
  • The distributed reserves, in whole or in part, either alone or together with the yearly profits, must be expressly mentioned in the shareholders resolution.

 

The articles of association may authorize that, in the course of a year, advanced payments of profits are made to shareholders, provided that some rules are followed:

  1. The board of directors approves the advanced payment;
  2. Such resolution shall be supported by a interim balance report, no more than 30 days old and certified by a statutory auditor, showing the existence of available amounts, according to the legal limits and taking into account the results obtained during the elapsed period of the year in which the advance is to be made;
  3. Only one advanced payment is allowed during each year and always in its second half;
  4. The amounts to be advanced cannot exceed half of what would be distributable, as referred to in 2.

Shareholders must return to the company all the assets received in breach of the law, but those who have received dividends or reserves whose distribution was not permitted by law, are only required to refund if they knew the irregularity of distribution or, given the circumstances, should have not ignored it.

The company’s creditors can propose legal action for refund of the company regarding these amounts.

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NEWCO is an inward investment services provider specialized in the implementation of foreign investment in Portugal and Malta. With 30 years of experience and know how, we help our clients maximize the opportunities and minimize the risks of operating in a new country, allowing them to stay focused on their business. Contact us to find out how we can help you invest or relocate into Portugal, including Madeira, or Malta.

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