Own Shares: Owning Yourself, Strategically
"A strategic look at how Portuguese companies can legally hold their own shares — and why it matters."
Why Hold Own Shares in a Portuguese Company?
In corporate structures across Europe, including Portugal, companies have the legal capacity to hold their own shares — also known as ações próprias or treasury shares. While it may sound counter intuitive for a company to "own itself," this strategic mechanism can serve several useful purposes when properly structured and compliant with legal constraints.
What Are Own Shares?
Own shares refer to shares in the company's share capital that are acquired and held by the company itself. This can happen through:
- A share buyback from existing shareholders.
- A transfer following the death or exit of a shareholder.
- Strategic planning ahead of future capital restructuring, incentive schemes, or exits.
These shares do not carry voting rights or entitle the company to dividends, but they can be temporarily held for strategic use, subject to the rules laid out in the Portuguese Commercial Companies Code (Código das Sociedades Comerciais).
How Can a Portuguese Company Acquire Its Own Shares?
The law strictly regulates the circumstances under which a Portuguese company can acquire its own shares or quotas. Specifically, a sociedade por quotas (Lda.) may only acquire own shares in one of the following situations:
- Gratuitously (a título gratuito) – for example, if a shareholder donates their share to the company.
- Through enforcement proceedings against a shareholder (em ação executiva movida contra o sócio) – where the company acquires the quota as a result of a judicial sale due to debt.
- Using freely distributable reserves in an amount not less than twice the value to be paid (se dispuser de reservas livres em montante não inferior ao dobro do contravalor a prestar) – ensuring financial stability of the company is not compromised.
These rules aim to protect creditors, preserve capital, and prevent abuses that could distort ownership or governance structures.
Why Would a Portuguese Company Hold Own Shares?
1. Facilitating Shareholder Exits
If a founder or investor wishes to leave, the company may repurchase their shares instead of finding a third-party buyer. This simplifies the transaction and helps preserve confidentiality and internal control.
2. Future Allocation to Key People
Own shares can be reallocated later — for example, to attract or reward employees, directors, or new investors through stock option plans or equity grants.
3. Preparation for External Investment
Holding own shares allows the company to offer equity in the future without immediate capital increase procedures, making it quicker and more flexible to onboard new strategic investors.
4. Capital Restructuring
The company can use treasury shares as part of a merger, spin-off, or reorganization. In some cases, they can also be canceled to reduce share capital and potentially increase the value of remaining shares.
5. Avoiding Dilution
Instead of issuing new shares to fund compensation schemes or investor deals (which dilutes other shareholders), own shares can be used to fund these actions without changing the overall capital structure.
Legal Limits and Compliance
Portuguese law sets clear rules on how own shares can be acquired and held:
- Limited to 10% of the company’s share capital (certainly for SA companies, debatable if it applies to Lda companies).
- Must be authorized in the articles of association or approved by the general meeting.
- Cannot be acquired if it would result in net assets falling below legal thresholds.
- Must be disposed of or cancelled within a certain timeframe if not used for a lawful purpose.
Failure to comply with these rules can lead to fines and invalidate the transaction.
Final Thoughts
Holding own shares is not just a legal curiosity — it's a strategic tool that Portuguese companies can use to manage change, incentivize people, or prepare for growth. However, it requires careful planning and strict compliance to avoid pitfalls.
If you're a founder or investor thinking about structuring ownership in a Portuguese company, speak to a qualified legal or financial advisor to ensure you’re taking full advantage of this powerful but regulated mechanism.
