In assisting our clients with the financing of their companies, we clearly see a preference for corporate financing through supplementary capital injections. This is due to the fact that this capitalisation instrument has two major advantages: lower costs than a share capital increase and easier repayment.
Supplementary capital contributions can be defined as "cash contributions without interest that the company will demand from shareholders when, if permitted by the articles of association, a company resolution so determines". Supplementary capital contributions are always made in cash. The capital injection thus made strengthens the company's equity.
On the other hand, supplementary capital contributions must be contractually provided for so that they can be demanded from shareholders, and they must be free of charge (they can never be remunerated).
It is therefore in the By Laws that the essential elements of this obligation are established, namely the maximum amount of supplementary capital contributions required of shareholders and the criteria for gauging the amount of the supplementary capital contributions that each shareholder is obliged to make.
A very relevant issue when it comes to capital injections by shareholders is the rules applicable to recovering this capital, in particular the rules on the conservation of share capital.
In fact, the principle of the intangibility of share capital is an essential element of Portuguese corporate law and is a direct counterpoint to the (abstract) right of shareholders to share in profits.
Whenever we talk about the distribution of company assets (except in the event of the liquidation/extinction of the company), we are talking about the balance between these two forces.
Although supplementary payments can only be repaid if the company's net worth does not become less than the sum of the capital and legal reserve, recovering the investment seems easier than in a capital increase scenario, and the operation can also be structured for greater tax optimisation.
Belzuz Abogados' Corporate and Commercial Law Department is at your disposal to provide any clarification or advice on the best way to finance your company.
Belzuz Abogados SLP
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