PORTUGAL Law and Practice Contributed by: Domingos Cruz, Joana Bugia and Constança Morão, CCA Law Firm
the holding is above 10% and the participation was held for a period longer than 12 months, which is typically harmful for business angels that, in an exit scenario, are usually below the threshold of 10%. In such case, the seller sub - jects the capital gain to its CIT tax rate. Currently the CIT general tax rate is 21%, plus local tax. The SMEs have a reduced rate of 12.5% for the Please refer to 4.1 Subsidy Programmes for details of government incentives. Other note - worthy initiatives are the stock options tax scheme, whereby employees of start-ups that receive stock options are subject to a single tax - able event (sale of the shares), and the tax rate is reduced to 14%. Board members are excluded from this regime. initial EUR50,000 of taxable income. 4.3 Government Endorsement In Portugal, founders’ and key employees’ long-term commitment is procured through the combination of several methods that ultimately reward their performance and commitment by giving them the opportunity to share in the future success of the company – ie, upon the occur - rence of trade sale, an IPO or any other liquidity event. For such purpose, start-ups – from seed to later stages – create incentive plans to offer to their key employees (alongside their monthly remu - neration). 5. Employment Incentives 5.1 General For the founders, acting as directors, despite the possibility of them being issued rights under the incentive plan, the incentive provisions are usu - ally specified in the shareholders’ agreement.
These agreements usually incorporate stricter clauses governing “bad leaver” and “good leav- er” scenarios. “bad leaver” event typically occurs when a founder voluntarily departs the company or is dismissed for just cause, whereas “good leaver” is defined as a founder leaving under circumstances not constituting “bad leaver” event. Should a founder-director be classified as a bad leaver, the company is typically entitled to acquire both their vested and unvested shares at their nominal value. Conversely, if deemed a good leaver, the company usually retains the right to acquire only their unvested shares. In addition to the above, non-compete, lock-ups and leaver provisions are commonly created to ensure that the founders’ vision remains aligned with that of the company and, if not, there are mechanisms to reduce any losses in connection therewith. 5.2 Securities Due to the creation of the Start-ups Law (see 5.3. Taxation of Instruments ) and the requirements created by VC investors (which, now more than ever, value and demand that plans of this kind be created as a condition for their investment), the incentive plans foreseen are in the process of standardisation. Their main features are the following: • There must be an unallocated pool of approx - imately 10% of the company’s share capital available to award to key employees. • The board can grant options to key employ - ees. • The exercise of the options gives rise to phantom shares (which are instruments grant - ing their owners the economic – but not the voting – rights of real shares). • The exercise price is usually the valuation of the previous investment round.
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