Setting up distribution contractual relationships in Portugal

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Paris | New York | Lisbon

1. Context

Setting up a business in Portugal, including any distribution contractual relationships, usually begins with choosing the business entity that best suits specific cases. To this effect, the most common and best suited types of business for an importer owned by a foreign supplier are: (a) public limited liability company; (b) private limited liability company (Lda.); and (c) single shareholder limited liability company.

In the case (a) of public limited liability companies, the basic (mandatory) elements for its incorporation are: (1) minimum of five shareholders; (2) minimum share capital of € 50,000; (3) articles of association; (4) commercial name; (5) board of directors and supervision board, which must be composed of at least one public certified auditor.

For (b) private limited companies, the basic elements for incorporation are: (1) minimum of two shareholders; (2) minimum hare capital of € 2,00 (€ 1,00 per shareholders); (3) articles of association; and (4) commercial name.

Unlike both previous options, (c) single shareholder limited liability companies are based on individual investment, and the basic elements are similar to private limited liability companies with minor exceptions: in addition to the sole shareholder, the minimum share capital is € 1,00.

Bearing this in mind, any distribution relationship (producer-distributor-final consumer) is available in Portugal, including the following and best known:

  • Agency – by which an agent (an individual or a company) undertakes the obligation to promote contracts on behalf of the principal, with autonomy and stability;
  • Concession – by which one of the parties undertakes to sell its products to the other party who the undertakes to buy them and sell them to the third parties, on its own account and on a stable basis, in a given constituency;
  • Franchising – by which one party grants another the right to exploit its trademark, company name or patents or any other licenses of intellectual property rights for certain consideration, often committing to provide its assistance and knowledge of the market, as well as its know-how.

2. Key Legislation

In the case of suppliers’ internal personnel, the rules of the Portuguese Labour Code apply, which regulate employment contracts. Regarding other distribution relationships, when the distributor is independent, the rules for service contracts mentioned in the Portuguese Civil Code apply. This is without prejudice to the agency law regime set forth in Decree Law nº 178/86 of 3 July 1986 (DL 178/86), which may be applicable to certain distribution contractual relationships.

The basic legal aspects to consider when assessing the contractual relationship between suppliers and distributors are the following:

  • Agency contracts – are subject to the legal regime laid down in DL 178/86. In line with the case law and legal commentary, the provisions of this regime may apply to other contracts that present similarities, although they do not operate automatically, but rather on a case-by-case basis.
  • Concession contracts – are not subject to a specific legal regime. In general, they follow the principle of contractual freedom, as well as the general rules of contracts. When admissible, the agency regime may be applicable by analogy.
  • Franchise contracts – are not subject to a specific legal regime either. Like concession contracts, franchise contracts are common. Such contracts are also governed by the principle of contractual freedom and other general rules of contracts.

It is important to mention that certain industry regulatory constraints exist, generally adopted in the form of codes of conduct, (e.g., in the context of the automobile industry, alcoholic drinks and publicity).

To learn more, please read the Portuguese chapter of the Lexology Getting the Deal Through’ guide “Distribution & Agency 2022”, submitted by the Portuguese team of Victoria Associates (available here).

Victoria Associates has successfully represented clients in disputes related to distribution contractual relationships and welcomes any question that may arise in this context (info@victoria.associates).

Victoria Associates

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