Legal guide for company directors and CEOs in Portugal

Because environmental, social and governance (ESG) is such an increasing focal point of good corporate governance, we address ESG duties and responsibilities first. For more general duties and responsibilities of directors and CEOs, please scroll down the page or use the navigator to jump to the relevant section. 

Yes. The main duties of the director – the duty of care and the duty of loyalty (please refer to 10. What other general duties does a director have?) – set out certain obligations that should be deemed as ESG considerations:

• Duty of care: directors must perform office so that the company complies with the applicable employment, environmental and welfare regulations;
• Duty of loyalty: directors must act in the company’s interest and take into account the long-term interests of shareholders, while also considering the interests of other stakeholders such as employees.

Directors also have reporting obligations in respect of ESG matters (please see question 4 of this section).

Listed companies must adopt a corporate governance code on a ‘comply or explain’ basis – either the code approved by the Portuguese Securities Market Commission (Comissão de Mercado de Valores Mobiliários or “CMVM”) or one issued by a specialised entity.

The CMVM-approved IPCG Corporate Governance Code has also been approved by the Portuguese Institute of Corporate Governance (Instituto Português de Corporate Governance) and has the following ESG principles:

• Corporate governance shall promote and enhance the performance of companies as well as the performance of the capital market, and shall underpin the confidence of investors, employees and the general public in the quality and transparency of management and supervision, and in the sustainable development of companies
• Companies shall ensure diversity in the composition of the respective governing bodies and the adoption of individual merit criteria in the respective appointment processes, which shall be the exclusive competence of the shareholders
• The company shall promote the evaluation of the performance of the executive body and of its individual members as well as the overall performance of the board of directors and of its specialised committees
• The remuneration policy for members of the board and supervisory bodies shall allow the company to attract qualified professionals at a cost that is economically justified by their situation, induce the alignment of interests with those of the shareholders – taking into consideration the wealth effectively created by the company, the economic and market situation – and constitute a factor for developing a culture of professionalism, sustainability, promotion of merit and transparency in the company.

The IPCG Corporate Governance Code was reviewed in 2020 with the aim of strengthening ESG considerations, namely those relating to diversity and remuneration.

Furthermore, until 6 July 2024 the Portuguese State will transpose the Corporate Sustainability Reporting Directive, implementing the sustainability reporting as an obligation of determined companies.

Directors of companies are legally required to prepare a management report which, to the extent necessary to understand the evolution of the business, the performance or the company’s position, shall cover both financial aspects and, where appropriate, non-financial performance benchmarks relevant to the company’s specific activities, including information on environmental and employee matters.

Directors of large companies (those with an average of more than 500 workers during the financial year), which are entities of public interest, are obliged to report on non-financial statements included on their management report, which must contain enough information for an understanding of the evolution, performance, position and impact of a company’s activities, referring as a minimum to environmental, social and worker-related issues, equality between women and men, non-discrimination, respect for human rights, combating corruption and attempted bribery, including:

• A brief description of the company’s business model
• A description of the policies followed by the company in relation to these matters, including the due diligence processes applied
• The results of these policies
• The main risks associated with these issues related to the company’s activities including, if relevant and proportionate, its business relationships, its products or services that are likely to have negative impacts in these areas and the way in which these risks are managed by the company
• Key performance indicators relevant to the company’s specific activity.

The company’s management body may consist of either one or more individuals. When a private limited liability company has two or more directors, they may act jointly or collegiately. The articles of association of a private limited liability company may also establish that the company is managed by a board of directors, in which case this body will function on a collegiate basis.

Public limited liability companies are managed by a board of directors – consisting of more than one individual –  but may have a sole director provided that their share capital does not exceed EUR 200,000. The board of directors may take one of three governance models:

• single board
• single board of directors, comprising an audit committee
• two-tier board, comprising an executive board of directors and a general and supervisory board.

Any governance model allows for the board of a company to comprise both executive directors and non- executive directors (or roles akin to those of executive and non-executive directors). Executive directors and non- executive directors are subject to the same duties, however executive directors discharge their duties by having an executive role within the company, whereas non-executive directors discharge their duties by exercising a general oversight of the executive directors’ management 

Both private individuals and legal persons, such as corporations, are eligible to be appointed for directorship positions. This is specifically established for public limited liability companies and is also accepted practice in relation to private limited liability companies (although there is case law which rejects this possibility). In the event that a legal person is appointed as a director, it must appoint a private individual to represent it. The legal person will share liability with the private individual appointed to represent it.

A director is not required to be a shareholder in the company and does not need to be resident in Portugal or a Portuguese national. However, a foreign director will need to obtain a Portuguese Tax Identification Number (NIF). Minors, incapacitated persons or persons pronounced legally incapable by the courts are not eligible to act as directors.

As a general rule, directors are appointed by a shareholders’ meeting (such appointment may also occur upon the company’s incorporation, with a provision included in the relevant incorporation document to appoint the relevant directors).

The articles of association of a public limited liability company may grant minority shareholders (with at least 10% of the shares representing the share capital of the company) the right to appoint one director.

If one or more directors of a public limited liability company are permanently absent they may be substituted by an alternate director(s) – if one or more have been appointed – or if there are no alternate directors, the board of  directors may co-opt a new director. If no new director is appointed by co-optation, the audit board or the audit committee are entitled to appoint a new director. In both situations, such appointment requires the ratification of the shareholders in a subsequent shareholders’ meeting.

Directors of private limited liability companies are appointed for an indefinite term, unless the articles of association establish otherwise. The directors of a public limited company are appointed for a period of time set out in the articles of association of the company up to a maximum of 4 years.

In both cases, directors can be re-elected unless the articles provide otherwise. Directors must accept the appointment (this acceptance is deemed implied if directors start acting in such capacity) and the appointment must be registered with the Commercial Registration Office.

In certain situations (in particular if the management of the company is jeopardised by the permanent or temporary absence of one of the directors or if the board does not have sufficient quorum to function), the directors or the shareholders may request the court to appoint a new director. For public limited liability companies, such request can only be submitted to the courts by shareholders.

A director may resign from office at any time by notifying the company.

The resignation of a director of a private limited liability company becomes effective 8 days after the notification has been received. The resignation of a director of a public limited liability company becomes effective at the end of the month following the notification, except if a substituting director is appointed in the meantime.

Directors are also removed upon expiry of the term they have been appointed for. If a term for which the directors have been appointed has expired without a shareholders’ meeting having convened and appointed new members, the directors will remain in office until the appointment of substituting members.

In addition, a director may be removed at any time by resolution of a shareholders’ meeting. Such removal may be: (i) based on just cause; or (ii) without just cause, in which case the company may be liable to pay compensation to the dismissed director for the damages the latter suffered as a result of the dismissal.

The compensation resulting from removal without just cause is capped and may not exceed the amount the director would have received up to the end of the period he/she had been elected for. For private limited liability companies, if there is no time limitation in the articles of association of the company for the relevant term, there is a legal presumption that such period does not exceed 4 years. 

Removal or resignation of a director is subject to registration with the Commercial Registration Office.

The directors are the company’s managing body with full authority to represent the company in all actions related to the company’s corporate purpose.

The company will always be liable to third parties acting in good faith in respect of actions taken by its directors, even when acting outside its corporate purpose. The authority to represent the company becomes effective upon acceptance of the directorship position. However, in relation to third parties, the appointment is not enforceable until registration with the Commercial Registration Office occurs.

In the case of private limited liability companies, it is not common for a board of directors to be established to manage the company. When there is more than one managing director, the respective powers and authority are exercised jointly and the company is deemed bound by the transactions concluded by the majority of managing directors.

When the company’s management body is organised as a board of directors (not common in private limited liability companies but common in public ones), corporate authority vests with the board of directors as a whole and such authority is exercised by the directors acting jointly. The company is bound by the majority of the directors (or ratified by such majority), unless the articles of association provide that a lower number of directors is required.

The board of directors is a collegiate body and does not have a maximum number of members. The articles of association must set out the minimum and the maximum number of members, in which case the general meeting determines the actual number of directors for the relevant term. 

A minimum attendance of a majority of the board’s members is required for a quorate board meeting.

Decisions of the board are reached by a majority of present or represented members. The chairman of the board has a casting vote in the event the board consists of an even number of members (or if the articles of association establish such a casting vote). Board minutes have to be recorded in the relevant meetings book. 

It is common in public limited liability companies to delegate certain powers to a managing director (this is also possible but not as common in private limited liability companies and is limited to determined acts or sets of acts), or to an executive committee. The delegate(s)/executive committee have the same authority to represent the company as the board within the powers that have been attributed to it. There are, however, certain powers that cannot be delegated, such as approval of the annual accounts, creation of guarantees, mergers, transformations, share capital increases and change of registered office.

In both private and public limited liability companies, the board of directors or managing directors (with the necessary authority) can grant powers of representation to third parties to act, with full authority, on behalf of the company.

The characterisation of the relationship of a director with the company is a disputed issue in Portugal.

The appointment of a director is generally deemed to be a corporate relationship in which a sui generis contractual relationship is also established between the company and the director, comprising aspects of mandate, services and employment agreements.

In public limited liability companies, it is common for an administration agreement (incorporating elements from typical services and mandate agreements) to be entered into between the company and the director.

As a general rule, directors are remunerated, although the articles of association of a private limited liability company may establish otherwise. 

In public limited liability companies, if the appointed director was previously an employee of the company, the employment agreement is automatically deemed suspended, ceasing to be effective upon appointment. It will however automatically come into force when such a person ceases to be a director, irrespective of the method of removal (i.e. resignation or dismissal).

Portuguese law does not have specific rules on conflicts of interest applicable to a director. However, it does establish conduct rules, specifying that the directors have a duty of loyalty towards the company. 

It is generally accepted that directors should not make decisions when there is a situation of conflict of interest (i.e. the director has a personal interest in a particular decision which may not be in line with the company’s interests). In such cases, the director may be liable towards the company for any damages resulting from breach of this duty. 

To avoid potential conflicts of interest, and unless the shareholders give their consent, directors are prohibited from conducting, directly or indirectly, any competing activity with the company, being liable towards the company for any breach of this obligation. Portuguese law also establishes a general prohibition for the company to enter into agreements with the directors unless the board of directors has previously passed a resolution approving this (in which case the relevant director cannot vote) and has been granted with a favourable opinion of the company’s supervisory body. Portuguese law establishes a specific prohibition on companies facilitating loans to directors, making payments on their behalf or creating guarantees to cover their obligations.

The main duties of the director are: (i) a duty of care, which entails that a director has the necessary availability, skills and knowledge of the company’s business while performing his/her functions with the diligence of a cautious, thorough and organised businessperson; and (ii) a duty of loyalty, which entails acting in the company’s interest and taking into account the long-term interests of shareholders, while also considering the interests of other stakeholders (e.g. employees, clients and creditors).

These general fiduciary duties are the basis of several specific duties established in the Portuguese Companies Code which are applicable to directors of both private and public limited liability companies.

As a general rule, directors’ duties are owed to the company. Although is a debatable issue in Portugal, it is generally understood that this means that duties are in fact owed to the shareholders as a whole and not to the company itself, as if it were a separate person with interests that are autonomous from those of its shareholders.

In respect of the duty of loyalty, directors shall also consider the interests of other stakeholders (e.g. employees, clients and creditors). 

A scenario of financial distress does not entail any changes to a director’s duties mentioned above. However, there are additional duties that directors have to comply with.

When it results from the annual or interim accounts that “half of the share capital is lost”, or when there are, at any given time, grounded reasons to consider that such a loss occurs, directors should call or request the convening of a shareholders’ meeting to inform shareholders of the situation and to take the measures deemed convenient. “Half of the share capital” is considered to have been “lost” when the company’s net equity is equal to or less than half of the share capital.  

Directors are also legally required to apply for a declaration of insolvency on behalf of the company within 30 days of the date on which directors become aware of, or ought to have become aware of, the insolvency situation.

Directors are jointly and severally liable vis à vis the company for unlawful actions or omissions resulting from a breach of their legal or contractual duties and which have caused damages to the company, except in the event that the director was not in attendance at the meeting when such a decision was taken or he/she voted against it. A claim may be brought by the company or, on its behalf, by shareholder(s) holding at least a 5% stake in the company (or 2% if the company is listed). The company is not required to prove that the conduct of the directors resulted from wilful misconduct or negligence, as there is a legal presumption to that effect.

Directors will not be liable if they are able to prove that they were properly informed, that no conflicts of interest existed and that the relevant decisions were based on rational criteria from a corporate/economic standpoint or if the unlawful actions or omissions of the directors resulted from a shareholders’ resolution.

If the directors have wilfully or negligently breached legal or contractual duties which are established for the protection of creditors, they may be liable vis à vis the company’s creditors if the assets of the company are insufficient to meet the company’s indebtedness towards its creditors. If no action is taken by the company or its shareholders (as a result of the mechanism described above), the company’s creditors may exercise the company’s rights and claim the relevant damages from the directors for the company. 

Directors may also be liable vis à vis shareholders or other third parties for any direct damages that may result from the performance of their functions as directors. In this case, directors shall only be liable if all general requirements for civil liability are met, i.e. there is an unlawful action or omission by the directors, the conduct is carried out with wilful misconduct or negligence, such action or omission has caused damages and there is a link between the action or omission and the damages. Third parties will include any party which is not the company, a director or a shareholder (while acting in such capacity) and may include employees, suppliers, clients, the State or any other creditors. 

In the event a company has a liability under tax law, and the company does not possess enough assets to cover such liability, directors may be jointly and severally liable for any tax debt which derives from actions or facts occurring during their term in office. 

In addition, directors may also be found criminally liable for such actions or facts. 

Directors may also be jointly and severally liable for the payment of labour credits arising from the labour relationship, its breach or termination, if they are overdue for more than 3 months, to the extent the requirements regarding liability vis à vis the company’s creditors or its shareholders/third parties, as provided above, apply.

Directors may be jointly and severally liable for the payment of the applicable administrative fines for social security and other labour administrative offences. 

In addition to criminal liability deriving from tax debts, there are several actions that may result in criminal liability of the directors, including: 

1. refusing to provide information relating to the preparation of shareholder meetings to interested parties;
2. misrepresentation of company information to persons with a right to receive information;
3.  irregular issuance of share or bond certificates; or 
4. rendering the company insolvent (either as a result of wilful misconduct or negligence). 

Directors’ liabilities cannot be limited by agreement. Such clause, if it exists, is deemed null and void.

In addition, shareholders may only waive their right to receive compensation or agree on a reduction thereof by a resolution of the shareholders representing more than 90% of the company’s share capital. 

Directors of public limited liability companies are required to provide a performance guarantee to cover potential liabilities, or to hire specific insurance policies to cover directors’ liability. However, with the exception of listed companies and large companies (which fulfil determined requirements), the performance guarantee may be waived by the company. In addition, the law foresees a general waiver of the obligation to provide guarantee to non-executive and non-remunerated directors.