Shareholder Loans or Supplementary Capital Contributions: How Can Shareholders Finance Their Company?

When a company needs funding, its shareholders may provide their own funds to support its operations or finance new investments.

In Portuguese private limited companies (sociedades por quotas), shareholder loans (suprimentos) and supplementary capital contributions (prestações suplementares) are two options that should be distinguished, particularly in terms of returns, the formalities required and the ability to recover the amounts provided.

Shareholder loans: the shareholder as a creditor of the company

Shareholder loans generally take the form of loans made by shareholders to the company or agreements to defer the due date of existing claims against it. In either case, the claim must be of a lasting nature.

Under a shareholder loan arrangement, the shareholder holds a claim against the company, and the payment of interest may be agreed. No particular form is required for the agreement and, as a rule, no prior shareholders’ resolution is needed. Even so, it is advisable to set out the amount, term and repayment conditions in writing.

Supplementary capital contributions: strengthening shareholders’ equity

Supplementary capital contributions must be made in cash and do not bear interest. Before shareholders can be required to make these contributions, the articles of association must provide for them and specify their aggregate amount. A shareholders’ resolution is also required to determine the amount payable and the deadline for payment.

These contributions do not increase the share capital and are recognised in shareholders’ equity for as long as there is no present obligation to repay them.

Repayment is subject to a shareholders’ resolution and is permitted only if the company’s net assets, after repayment, are not less than the combined amount of its share capital and statutory reserve, and the relevant shareholder has fully paid up their capital contribution.

Which option should you choose?

The choice depends on the company’s needs and the shareholders’ objectives. If the intention is to lend money to the company, with provision for repayment and, where agreed, interest, shareholder loans may be an option. If the priority is to strengthen shareholders’ equity, supplementary capital contributions may be appropriate, bearing in mind the statutory restrictions on repayment.

Key considerations

Before transferring any funds, it is important to review the articles of association, agree the terms of the arrangement and assess its accounting and tax treatment.

The repayment of shareholder loans is also subject to restrictions, particularly in the event of dissolution or insolvency. Supplementary capital contributions cannot be repaid once the company has been declared insolvent.

Conclusion

Both shareholder loans and supplementary capital contributions allow a company to be financed using shareholders’ funds, but they have different implications. The choice should be made in light of the company’s needs and the shareholders’ expectations regarding returns and the recovery of their investment.

VPA is available to assist with the structuring and formalisation of shareholder financing, ensuring an appropriate legal framework for each transaction and clearly defined terms.