A startup can start operating without being registered or having entered into a partnership agreement. Two or more people may just get together and start a business activity. However, in such case, the assets of the entrepreneurs are unlimitedly liable for the obligations created under that business activity. After registration, the company can take responsibility for these obligations.

Therefore, to better ensure the protection of entrepreneurs, we recommend the incorporation of a company (you may want to see our draft of agreement for the incorporation of company). Public limited companies and private limited companies are the most common forms, since in both cases the liability of members is limited. This means that only the assets of the company, and not those of the shareholders, are liable for the debts of the company.

Private companies have a lighter organizational structure, more suitable for short-term investments, while public companies are more geared to long-term investments and allow for a greater dispersion of share capital.

Complementing the articles of association there is a possibility of entering into shareholders’ agreements. It is common to fix voting commitments, to establish qualified majority requirements for certain actions, or to set out conditions for transmission of shares. It is also by these agreements that the shareholders define provisions to ensure that their percentage share in the company is not reduced (anti-dilution).

Incorporating a company is a simple and quick procedure and Portugal offers two swift ways to do it.

And what must I do to incorporate a company?

• Using the "company on-the-spot" method, interested parties can go to an office, choose one of the pre-approved company names and articles of association and set up the company. It has a cost of €360.
• Through the "online incorporation of companies” entrepreneurs can choose a company name and the articles of association over the internet, avoiding any displacement to a public service. It has a cost of €220.

The mechanism "branch on-the-spot" allows the immediate creation of a Portuguese branch of foreign-based entities at a cost of €200.

Common corporate financing

Most entrepreneurs start by financing their project from their own savings and from family and friends loans.

Corporate law provides for the self-financing of companies through supplementary (free) or accessory capital contributions (free or against consideration) and shareholder’s loans (free or against consideration) as well as through funding by partners or by third parties in the contexts of capital increases or issuing of obligations.

The bank loan is the most traditional means of financing, but in the case of startups it is not always simple, as banks usually require collateral for loans. Now, if the company does not have a track record or assets that the bank consider safe enough, this may condition the granting of the loan to the provision of personal guarantees by entrepreneurs, which means that the assets of the latter are accountable for the debt in the event of failure of the company. Today, several banks in Portugal set up partnerships and credit lines directed to startups.

Other investors

Private equity funds provide funding to companies with growth potential in exchange for a stake in the  share capital (equity) that they intend to sell when the company value increases or to maintain if the company generates substantial profits.

Business angels and venture capitalists are investors willing to invest in companies in their earliest stage, in return for equity or options (you may want to see one of our drafts of Term Sheet). Both types of investors may have a varying degree of intervention, including counseling, sharing of contacts or participation in the definition of the company strategy.

Employment agreement

The most common form of recruitment is through employment agreements, which usually do not need to be written. Just like that, I can hire someone to work for me, without a contract term duration, upon the payment of a salary.

If I intend to hire someone for a certain period of time, I can do it through a fixed term contract, justifying it with the company’s start operation. A fixed term contract cannot be renewed for more than 3 times and have a maximum duration of two years.

Employers must notify the Social Security about the hiring of new employees, which can be done through the relevant website. The social security contribution, monthly paid by the employer, is equal to 23,75% of the employee’s remuneration.

Provision of services

An alternative to the employment agreement is the provision of service agreement, which allows me to hire the result of an intellectual work of an collaborator, with no employment relationship or the costs associated with it. However, in long-lasting and stable relationships, there is a risk of this contract to be qualified by the State as an employment agreement.

Innovative ideas with commercial value may be protected as intellectual property. There are three major forms of intellectual property protection:

• Industrial property;
• Copyright; and
• Trade secret.

Industrial property covers utility patents, designs and distinctive signs of trade. This right ensures the exclusive use of a particular invention, design and the signs used to distinguish goods and firms on the market. Inventions are considered: the products or processes, in all fields of technology; new processes for obtaining products, substances or compositions already known.

Patents and utility models are exclusive rights that protect inventions through a simplified and accelerated procedure and the “industrial design” are rights that entitle their holders to a monopoly or exclusive use of the appearance of products. However, the law does not allow the registration of designs which are not new or do not have an individual character. The distinctive signs of trade are signs identifying the different companies, products or services, including brands, names or symbols of establishments, logos and firms.

Copyright provides protection for literary, artistic works, computer programs, databases or multimedia creations. They are automatically granted without official registration and the holder may use the symbol of "copyright“, if she/he so desires. In Europe, software creations are protected under copyright.

Trade secrets are commercial secrets or technical skills (know-how). When there is need for disclosure of startup secrets, for example, to enable an investor to evaluate the project, it is necessary to protect this information. The non disclosure agreement is the most appropriate way: protects the use of disclosed information by a particular person (or company), to another person, or the exchange of information between certain people.