Supplementary capital contributions and ancillary capital contributions are two commonly used forms of funding private limited companies (LDAs) in Portugal and are covered by Portuguese law (the Commercial Companies Code).
Supplementary capital contributions are non-interest-bearing shareholder contributions in cash that are accounted for as equity. To be demanded from shareholders they must be covered in a company's by-laws and require a general meeting resolution. Pursuant to certain requirements, supplementary capital contributions may be repaid to the shareholders. One of the advantages of supplementary capital contributions is the possibility of increasing the company's equity without having to undergo the formalities of a capital increase.
Ancillary capital contributions may or may not be interest bearing depending on the shareholders' choice. They may consist of any type of legal obligation and must be covered and detailed in the by-laws. As a rule they are not necessarily accounted for as equity.
The nature of these contributions has led to many discussions about their legal nature and it has been said that where ancillary capital contributions consist of cash and are non-interest bearing they are identical to supplementary capital contributions, so the difference is not justified.
To understand the nature of both contributions and to draw the line between them, especially in such cases, it is important to analyze the German law from which they were both imported.
Supplementary capital contributions were imported by the Portuguese legislator from the German GmbHG where they are known as nachschusspflicht, which can be translated as subsequent contribution obligation.
Ancillary capital contributions were also imported by the Portuguese legislator from the German GmbHG where they are known as nebenleistungen, which can be translated as other contributions.
Notwithstanding the differences resulting from the applicable regimes, the German designation alone gives a good clue as to the differences in nature. Supplementary capital contributions were conceived as a supplementary (in the sense of subsequent) or second-line share capital entry - not subject to the strict legal protection of share capital, but with an identical legal function except in respect of creditors. But ancillary capital contributions were conceived precisely as ancillary to capital, and may serve any other purpose determined by shareholders other than the purpose that share capital serves.
This analysis of their designation, which clearly indicates a different function, may help to draw the line between the two, especially in the case of supplementary capital contributions and ancillary capital contributions that consist of cash and are non-interest bearing.
By Sofia Gouveia Pereira