Date of reorganisation

Can a corporate reorganisation be backdated or deemed to have already taken place, for example from the start of the financial year?

In mergers and demergers, the transactions carried out by the company, or companies to be merged or split, can be considered, from an accounting perspective, as having been carried out by the beneficiary company from a date to be chosen by the entities involved. This date can also be considered with regard to tax, provided that it occurs in the same fiscal year in which the reorganisation is definitely registered with the Commercial Registry.


What documentation is required in a corporate reorganisation?

The main documents required for a merger and a demerger are:

  1. a merger or demerger plan, prepared by the boards of directors of the entities involved in the corporate reorganisation, the content of which is specified by the PCCC, including, among others, a balance sheet of each of such entities;
  2. an opinion issued by the supervisory corporate bodies (when such bodies exist) of the relevant entities;
  3. a report issued by an independent auditor, or auditing company on the merger or demerger plan referred to in (i) above (although this document may be waived by all shareholders and holders of other voting rights instruments);
  4. resolutions of the shareholders of the relevant entities; and
  5. other external consents that may be required for the reorganisation.

In simplified mergers (where the acquiring company holds 90 per cent or more of the share capital of the target company), the documents mentioned in (ii), (iii) and (iv) are not required.

Regarding transfers of business, in addition to the applicable internal corporate consent and the external consents that may be required for the reorganisation to be carried out, the transfer is documented by means of an agreement to be entered into between the transferor and the transferee of the business, to be carried out with the formalities that are necessary for the transfer of the assets included in the perimeter of the transaction, but at the least, in writing.

Representations, warranties and indemnities

Should representations, warranties or indemnities be given by the parties in a corporate reorganisation?

In most cases, where a corporate reorganisation is carried out, there are no representations, warranties or indemnities granted between the parties. It will be important, however, to do so when, due to the particular circumstances, it is convenient to determine who will lay certain risks or liabilities relating to the business being transferred. This is, in practical terms, most applicable in cases where the corporate reorganisation is made through the means of the sale of a business to another entity of the group or where the corporate reorganisation precedes a sale to a third-party investor.

Assets versus going concern

Does it make any difference whether assets or a business as a going concern are transferred?

Yes. From a corporate perspective, simple demergers (ie, demergers where assets of a company are carved out and used to incorporate a new company) are only possible if the split assets constitute a business as a going concern (the PCCC also allowing, in this case, the transfer of liabilities related with the creation and functioning of said business).

Also, contributions in kind, in the context of share capital increases, may only include liabilities if the same are comprised in a business as a going concern (it being debatable whether it is possible to include liabilities in such contributions when the same are only partially related to the assets being transferred).

Regarding tax, as a general rule, the CIT neutrality regime applicable to demergers and exchanges of assets (ie, transfers of assets in exchange for shares of the receiving company) is only available for the transfer of a business as a going concern. Further, the VAT no-supply rule only applies to the transfer of a business as a going concern.

Types of entity

Explain any differences between public, private, government or non-profit entities to consider when undertaking a corporate reorganisation.

The reorganisations of associations and foundations are governed by specific rules under Portuguese law. The main laws to take into consideration in this regard are the Portuguese Civil Code and, in the case of foundations, the Legal Framework of Foundations.

The merger of foundations is subject to a decision by the Prime Minister. The merger can only take place between foundations pursuing similar purposes and needs to be first proposed by their administrative bodies. The founding parties of each foundation must be consulted and the merger must not collide with the will of these founding parties (either as expressed in the consultations conducted with them or as expressed in the deed of establishment of the foundation, if the founding parties are already deceased).

The Prime Minister may also determine that an existing foundation is to be merged with another foundation, even if no merger has been proposed by the foundations’ respective administration bodies (but subject likewise to prior consultation with the founding parties) if (i) the original purpose of one of the foundations has been fulfilled or has become impossible, (ii) the original purpose of one of the foundations has ceased to have relevance for society as a whole or (iii) the foundation’s assets are not sufficient for carrying out its intended purpose.

In the case of foundations that have been awarded with the public utility status, or in the case of public foundations, assets that are part of the initial contributions made by the founders or assets that are especially important for the foundation in light of the foundation’s purposes, may only be transferred with a prior authorisation from the Prime Minister, subject to the relevant transfer being deemed void in the absence of such authorisation. Otherwise, the administrative body and the executive body have the required competences to approve and implement transfers of the foundation’s assets.

A foundation can become extinct in the following cases:

  • if its fixed duration has expired;
  • if a cause for extinction, foreseen in its creation, has occurred;
  • in the context of insolvency proceedings;
  • if its purpose has become unlawful;
  • if its activities do not correspond with its stated purpose;
  • if a court of law orders the extinction of the foundation due to inactivity of the foundation for three consecutive years;
  • if its purposes are being pursued by illicit or immoral means; or
  • if its existence is incompatible with public policy.

The Prime Minister can also order the dissolution of a foundation.

As regards the destination to be given to a foundation’s assets in the case of extinction of the foundation, specifically, and pursuant to the Legal Framework of Foundations, such matter should be primarily governed by the deed of establishment of the foundation. In the absence of regulation of this matter in such deed, the assets shall be awarded to a foundation or association with similar purposes, chosen among an order of priority approved by the administrative body or the Prime Minister. If none of the entities in the approved order of priority accept the assets, the assets shall be awarded to the Portuguese state.

In the case of associations, and pursuant to the Portuguese Civil Code, any changes to the articles of association or the extinction of the association must be approved by the general meeting of associates. Consequently, any reorganisations entailing a change to the articles of association (such as a change to the purpose of the association) or the extinction of the association must be approved by this body. As regards the destination to be given to an association’s assets in the case of liquidation, specifically, and pursuant to the Portuguese Civil Code, such matter may be governed by the by-laws of the association or by a resolution of the general meeting of associates, it being possible, for example, to distribute the assets to the associates in the case of liquidation, or to distribute all assets to another association or a foundation. If an association is in the process of liquidation and no regulation of this matter is provided by its articles of association or a resolution of the general meeting of associates, a court of law may, following a petition from the Portuguese Public Prosecutor’s Office, from an associate, or from any interested third party, decide to award all assets to another non-profit entity or to the government with the means to ensure, as far as possible, that such assets will be used for purposes similar to those of the extinct association.

As regards sales and other transfers of assets other than in the context of liquidation of the association, the articles of association shall provide the rules to be complied with for such purposes. However, according to some academic authors, transfers or other actions of disposal of assets that, in light of their nature or value, are structural for the association, must always be approved by the general meeting of associates before being carried out by the association’s administrative body.

Finally, it should be noted that certain types of associations are regulated by specific legislation, which may provide for special rules in relation to the above matters.

Post-reorganisation steps

Do any filings or other post-reorganisation steps need to be taken after the corporate reorganisation takes place?

Mergers and demergers are subject to registration before the Commercial Registry. In addition, corporate reorganisations may also entail the transfer of specific assets that are subject to registration before other public registries (such as real estate assets, vehicles and industrial property rights), in which case, the registration of such transfers shall also be requested before the relevant registry.

Regarding tax, it may be necessary to opt for the application of the CIT neutrality regime and also to request certain tax benefits and the maintenance of tax losses, and other tax benefits, depending on the nature and form of the reorganisation.