Government bill No. 94/XIV/2 was submitted to the Portuguese Parliament on May 14 2021. This bill proposes the 39th amendment of the Portuguese Securities Code, and the proposed changes are expected to be approved later in 2021.
One of the proposed amendments introduces the possibility of certain companies issuing multiple voting shares, which already exists in other jurisdictions, and has recently become the subject of wide attention and even considered one of the key tools to attract fast-growing tech companies (and especially their founders) to listing in regulated markets.
Accordingly, the stated purpose of these amendments is “[t]o improve the attractiveness and competitiveness of our market (…). This possibility constitutes an additional instrument to promote the dispersion of capital in the market, available to companies already in the market, but also to companies that wish to be admitted for the first time”.
If approved, this amendment will put an end to the discussion of whether the issuing of shares with multiple voting rights is possible for listed companies, taking into consideration paragraph 5 of Article 384.º of the Portuguese Commercial Companies Code (CCC), which establishes the general prohibition of establishing plural votes in the Articles of Association of joint-stock companies.
A small fraction of Portuguese scholars (amongst others, see MADALENA PERESTRELO DE OLIVEIRA in Revista de Direito das Sociedades, year VII (2015), 2, pp. 435-470) have argued for a more permissive approach to the interpretation of this provision, so as to deem it inapplicable to listed companies, for example claiming that the specificities of listed companies make the ‘one share, one vote’ principle void in terms of its intended content and motivations, but this understanding has understandably lacked traction and clear legal guidelines are expected before the mechanism is considered by companies and their shareholders.
Multiple voting will add a new tool for ensuring a disproportion between the fraction of capital held by certain shareholders and their voting power, which until now was only possible, within the Portuguese legal framework, essentially through either (i) the establishment of limits to the number of votes that may be exercised, when issued by the same shareholder (voting caps), or (ii) through the use of non-voting preferred shares.
There are a few relevant practical aspects to note from the draft. Firstly, the creation of shares with plural-voting rights is available for companies admitted to trading on regulated market or multilateral trading facility as well as for companies seeking admission, capped at five votes per share.
The introduction of such rights can be achieved, either ab initio, as stipulated in the articles of association, or subsequently, in the context of a capital increase (in which case the then current shareholders will have a pre-emptive right limiting the impacts of any potential dilution of their shareholding)or the conversion of common shares, in which case, its approval must follow the general rules for statutory amendments, i.e. it must be approved by a two-thirds majority, if shareholders representing at least one-third of the capital are represented on a first call, or, on a second call, by simple majority, if shareholders representing half of the capital are present (assuming no special majorities are established in the articles of association).
If other classes of preferred shares already exist, considering that the creation of new categories of shares with equivalent or superior special rights will indirectly affect the privileged shareholders, such shareholders may be called to give their consent for the creation of plural-voting stock at a special meeting, by a two-thirds majority.
Other design issues have been discussed extensively in other jurisdictions, notably, whether multiple voting stock should be perpetual or terminate (or ‘sunset’) at a given moment in time, and whether it should be transferable as such (amongst others, see CLARA HOCHLEITNER in “Dual-class Technology Firms”, Drexel Law Review, Volume 11, 2018-19, pp. 101-147). An increasingly common view is that multiple voting stock should precisely sunset if and when it is transferred, which would imply its automatic conversion into ordinary shares.
At this stage the draft law does not provide for such possibility, which may raise practical doubts in light of the reinforced protection regime surrounding the cancellation of special rights and restrictions on transferability.
Despite recent doubts as to the effectiveness of this tool in the context of recent IPOs in Europe (e.g. Deliveroo) and the importance of proper drafting of the final legislative piece, all in all this seems to be a positive step forward in adding flexibility to founders, investors and other market participants. The future will tell whether this will effectively assist in bringing more Portuguese companies to the capital markets or will be reduced to an interesting academic exercise.
Eduardo Paulino
Partner, Morais Leitão
Francisca Osório de Castro
Trainee lawyer, Morais Leitão
