What to look for when acquiring a Portuguese company?
This article provides an overview of the legal framework applicable to the acquisition of Portuguese companies.
The Portuguese economy continues to show positive signs of continuous growth with restored confidence. These factors reflect positively in the Portuguese M&A market. The intricacy of SME related transactions increased significantly with the sustained interest of foreign investors.
The spectrum of possible acquisition structures is broad and will depend on the purpose of the transaction and associated risks and liabilities.
Both share and asset deals are common, and it is not uncommon for a deal to start as a share deal and be transformed into an asset deal.
In our opinion, asset deals are becoming more widespread, as they avoid exposure to the target’s past liabilities and contingencies, and do not trigger change of control rules. Other structures include the transfer of a business as a going concern or mergers.
Requirements, formalities, and authorizations needed to complete a transaction will depend on the Target’s company type. Each type of company is regulated by a different set of rules regarding shareholder-company duties and obligations, the interaction between shareholders and organization structures.
Before an M&A transaction, formalities such as waivers and authorizations must take place. Transactions related to qualified holdings in public companies may also trigger mandatory filings and bidding obligations. It is not uncommon for companies’ bylaws to include pre-emption rights or tag-along rights.
Special rules apply in regulated sectors, providing for restrictions, disclosures, and notifications. However, there are no special rules or constraints for foreign buyers to acquire Portuguese companies.
The design of the acquisition structure may also be driven by tax implications. Specific tax aspects must be considered when structuring an acquisition or a disposal. Portugal’s corporate income tax system provides several advantages, allowing for tax-neutral M&A transactions if proper structuring is planned.
Under the participation exemption regime, capital gains derived from the disposal of shares in Portuguese companies are exempt from corporate taxation, provided specific requirements are fulfilled. Different regimes apply to asset deals, to the disposal of real estate and businesses.
Portuguese law also protects other stakeholders such as employees. Particular attention should be paid to this aspect. In certain scenarios, employees can oppose the transfer of business units from one company to another. On the other hand, certain creditors may also be protected when shareholders provided personal guarantees and collaterals. Finally, the transfer of contractual positions, assets or liabilities may require third-party consents.
The acquisition of a Portuguese company requires lawyers that are experts in legal and tax matters, and knowledgeable of accounting and business matters. A good legal team will conduct a thorough due diligence and carefully identify red flags.
To avoid pitfalls, it is also key for the legal team to fully understand the culture and linguistic workings of this jurisdiction, while also be able to convey all information in a clear, linguistically precise and technically sound manner.
GFDL Advogados regularly assists both foreign buyers and domestic sellers in all stages of acquiring or disposing of an enterprise in Portugal.