Mergers, demergers and acquisitions of companies involve complex legal processes, with corporate, contractual and, frequently, competition implications, which must be carefully planned from the initial negotiation stage. This article forms part of the Corporate Law area of Araújo & Associados.
Forms of acquisition – shares vs. assets
The acquisition of a business can essentially be structured in two ways: through the acquisition of the shares (quotas or shares) of the company that owns the business, with the company and most of its legal relationships remaining unchanged, and only the ownership of the share capital changing; or through the direct acquisition of the assets that make up the business – property, equipment, contracts, intellectual property -, without the selling company itself being transferred. The choice between these two forms has significant tax, contractual and liability implications in respect of hidden or contingent liabilities, and should be weighed case by case according to the objectives and risk profile of each transaction.
Due diligence – the preliminary audit phase
Before proceeding with the acquisition, it is common and advisable practice to carry out a due diligence – a legal, financial, tax and, depending on the sector, also technical or environmental audit process, intended to identify risks, contingencies and liabilities of the company or business to be acquired. The results of the due diligence typically influence the final price of the transaction, the need for contractual protection mechanisms for the buyer – such as seller warranties and representations, and retentions or escrow deposits of part of the price -, and, in some cases, the decision whether or not to proceed with the transaction itself.
The corporate merger process
The merger of companies is governed by the Commercial Companies Code, and is preceded by the drawing up of a merger plan by the management bodies of the participating companies, which must then be submitted to a resolution of their respective general meetings. Following more recent changes to the regime, the merger may be registered directly after the corporate resolutions approving it, the previous requirement for a public deed to be executed beforehand having been eliminated. The merger may take the form of a merger by absorption, in which one participating company absorbs the others, or a merger by formation of a new company, resulting from the combination of all the participating companies.
Prior control of concentrations by the Competition Authority
Certain merger or acquisition transactions, where they involve a lasting change of control over the whole or part of one or more undertakings and meet the notification criteria laid down in the Competition Act (Law No. 19/2012 of 8 May), are subject to mandatory prior notification to the Competition Authority (Autoridade da Concorrência, AdC), and may not, as a rule, be completed before the corresponding authorisation has been obtained.
Mergers and acquisitions and other related matters
Acquisition transactions frequently involve the entry of new shareholders or investors, making it advisable to enter into or review a shareholders’ agreement, a matter developed in the article Shareholders’ agreements – what they should contain and what they are for. Questions of valuation of shareholdings and of disputes between shareholders may also arise in the course of these transactions, a matter dealt with in the article Disputes between shareholders – how to resolve corporate conflicts.
About Araújo & Associados
Established in 1980, with offices in Porto and Lisbon, Araújo & Associados provides legal advice on mergers and acquisitions transactions, supporting clients at every stage of the process, in Portuguese, English, French, German and Spanish.
Frequently asked questions about mergers and acquisitions
What is the difference between buying a company's shares and buying its assets?
In an acquisition of shares, ownership of the company is acquired, with the company and most of its legal relationships remaining unchanged. In an acquisition of assets, specific assets and contracts of the business are acquired directly, without transferring the company itself – each form has different tax and liability implications.
Is due diligence always mandatory in the acquisition of a company?
It is not legally mandatory, but it is strongly advisable market practice, as it allows risks and contingencies that may influence the price and contractual terms of the transaction to be identified.
Can a creditor of one of the companies involved in a merger oppose the transaction?
Yes, under certain conditions – in particular if their claim predates the publication of the registration of the merger plan, and provided that they have previously asked the company to satisfy the claim or to provide adequate security, without the request having been met.
Do all mergers and acquisitions have to be notified to the Competition Authority?
No, only transactions that constitute a concentration of undertakings and meet the notification criteria laid down in the Competition Act, relating to the turnover or market share of the undertakings involved.
Contact us
For more information on mergers and acquisitions, or to book a legal consultation, you can contact us through our Porto or Lisbon offices, by telephone, email or via the form on the website. We provide legal advice in Portuguese, English, French, German and Spanish.