Introduction of the concept of Affiliated Companies under the New Commercial Code
We hereby inform the business community and other interested parties of the introduction of the concept of affiliated companies (sociedades coligadas) under the new Commercial Code, approved by Decree-Law no. 1/2022, of 25 May (the “New CCom”), which will enter into force on 22 September 2022.
Article 500 of the New CCom divides group company relationships in two distinct groups, namely:
- companies in a shareholding relationship (where one has shareholding in another or each has reciprocal shareholdings in each other (sociedades em relação de participação); and
- companies in a group relationship in a strict sense (sociedades em relação de grupo).
Companies in a shareholding relationship are subcategorized as (i) companies in a simple shareholding relationship (sociedades em relação de simples participação), where one company holds at least 10% of the shareholding in the other, but does not meet the criteria under group relationship in strict sense (article 501); and (ii) companies with reciprocal shareholding relationship (sociedades em relação de participação recíproca), where two companies hold in each other at least 10% of the shareholding (article 503). In both cases, once these relationships are established and for as long as one company holds at least 10% of the shareholding in the other, there is a duty to communicate the acquisition or alienation of the shareholding in the other company.
Companies may be considered as being in a group relationship in the strict sense when a vertical legal relationship, a horizontal legal relationship or a contractual relationship is established. This relationship is reflected in the following 3 forms below:
- Control relationship (sociedade em relação de domínio) – when one of the companies directly or indirectly exercises a dominant influence over the other(s) either by detaining the majority of the share capital, the majority of the votes or the right to appoint more than half of the members of the Board or the supervisory body (Article 505);
- Joint group relationship (sociedade em relação de grupo paritário) – when 2 or more companies that are independent from each other or other companies, contractually submit themselves to a single management structure (article 514); and
- Subordination relationship (sociedade em relação de subordinação) – when a company contractually subordinates the management of its activity to another company (the managing company), regardless of such other company being in a control relationship (article 517).
For companies in a control relationship, the dominant company:
- is entitled to give binding instructions to its subsidiaries;
- is required to promote the corporate purpose of the subsidiary; failing which, the dominant company may be held liable by the subsidiary for the violation of this duty; and
- can be held liable for the debts of its subsidiaries even if the debts accrued prior to the relationship of the dominant company and the subsidiary.
The members of the management of the dominant company are also required to adopt the necessary care in relation to the companies within the group, as required for the dominant company. The shareholders of the subsidiary may claim compensation from such a director for violations of specific general duties of a director foreseen in the New CCom.
Joint group relationships are created through a written agreement approved by all the intervening companies upon approval of the relevant corporate body. This agreement is entered into for a specific timeframe and can be renewed. The legal structure of the companies’ administration and supervision bodies cannot be altered but a common management body may be created.
For the subordination relationship specifically, the agreement between the managing company and the managed company should be reduced to writing and registered with the Legal Entities Registry. There will be a group relationship between the managing company and all of the companies it manages (as well as with any other company that it dominates). A project for the subordination relationship must be prepared by the management of the intervening companies. Any “free shareholder” may, within 90 days from the date of the project approval by the intervening companies, oppose the subordination agreement. The managing company, amongst other duties and rights, is obligated to guarantee the profits of the “free shareholder”. The provisions applicable to the dominant relationship are also applicable to the subordination relationship and unless otherwise established in the subordination agreement, the managing company has the right to give instructions to the managed company even if such instruction is unfavourable to the managed company.
 In terms of article 518(2) of the New CCom, a free shareholder is the shareholder within the companies’ shareholding structure that has no relationship with or link to the managing company, other than the fact that they are shareholders in the subsidiary.