Buying a company that is already trading is often the quickest way to enter a market, gain scale or secure an experienced team from day one. In Portugal, the shortage of successors across thousands of family businesses has brought solid companies to market — firms with established client portfolios and a proven track record. For a well-prepared buyer, this is a genuine opportunity for growth.
Preparation, however, makes all the difference. Whoever acquires a company also acquires its past: contracts already signed, debts already incurred, pending disputes and obligations that are not always visible in the documents the seller presents. The line between a good investment and a costly problem is drawn before signature, in the depth of the preliminary analysis.
In this article we walk through the essentials every buyer should examine: the various dimensions of due diligence, the most common hidden liabilities, the difference between an asset deal and a share deal, and the contractual protections that safeguard the investment after completion.
Due Diligence: The Essential Examination Before Buying a Company
Due diligence is the systematic verification of the target company before purchase. The objective is simple: to confirm that what you are buying matches what has been presented. In practice, it is organised across four complementary dimensions.
Financial
Financial analysis tests the quality of the numbers. Reading the financial statements for recent years is not enough; you need to understand whether results are recurring or one-off, how concentrated turnover is among a handful of clients, how working capital is evolving, and what debt — whether bank borrowing or amounts owed to suppliers — will transfer with the transaction. Results inflated by extraordinary events are among the most common traps in valuing small and medium-sized enterprises.
Legal
The legal strand confirms ownership of the quotas or shares (quotas being the ownership units of a Portuguese private limited company) and the absence of encumbrances over the holdings, under the rules of the Portuguese Companies Code. It also reviews the material contracts — in particular clauses allowing counterparties to walk away on a change of control — the licences the business needs to operate, ownership of trade marks and, where there are several shareholders, any shareholders' agreements that may restrict the transfer of the holdings.
Tax and Employment
On the tax side, it is essential to verify the company's tax and social security standing and to assess the risk of future adjustments arising from positions taken in earlier years. Tax consequences vary considerably with the structure of the transaction and the specific circumstances of the parties, so they always call for case-by-case analysis with specialist support. On the employment side, what matters are the existing contracts, accumulated length of service and any service providers who, in practice, function as employees of the company.
Hidden Liabilities: Where the Risks Hide
A significant share of post-acquisition problems stems from liabilities that never appeared on the balance sheet. Among the most frequent:
- Guarantees and sureties given by the company in favour of third parties or other companies in the same group;
- Disputes under way, or threatened, with clients, suppliers or former employees;
- Tax and social security contingencies for years still open to inspection;
- Verbal commitments to key clients that appear in no written contract;
- Environmental or licensing liabilities, particularly in industrial activities.
None of these comes to light during a site visit or a conversation with the seller. It emerges when accounts, contracts, certificates and registrations are cross-checked — and it is precisely this cross-checking that due diligence organises.
At completion, you pay the agreed price. In the years that follow, you pay for what you did not see. Due diligence exists to shorten that second bill.
Asset Deal or Share Deal: Two Ways to Buy a Company
There are two main routes to completing the acquisition, with very different consequences for the buyer.
In a share deal, the buyer acquires the equity itself: quotas in a private limited company, or shares in a public limited company. The company remains exactly the same, with its contracts, licences, employees and history. It is the simplest route in terms of business continuity, but it means the company's entire past — including any liabilities that went undetected — comes bundled with the purchase.
In an asset deal, the buyer acquires selected assets: equipment, brand, client portfolio, stock. The selling company stays in the seller's hands, along with its historical liabilities. This route gives more control over what is being bought, but it may require counterparties' consent to transfer contracts, fresh licences to operate, and attention to the rules on the transfer of a business as a going concern, which in Portugal can mean employment contracts passing to the acquirer.
The choice between the two routes also carries significant tax implications for buyer and seller, which should be weighed case by case before the structure of the transaction is settled.
Contractual Protections: What Is in Writing Protects You
Even the best due diligence never eliminates risk entirely. The sale and purchase agreement should therefore allocate that risk in a balanced way. The usual instruments include the seller's representations and warranties on the state of the company, indemnity clauses for liabilities that later materialise, retention of part of the price or a deposit in an escrow account for an agreed period, and earn-out mechanisms, under which a portion of the price depends on the future performance of the business.
Where the seller keeps a minority stake or stays on in management during the transition, a well-drafted shareholders' agreement sets clear rules on strategic decisions, future exit and deadlock resolution. And a non-compete clause stops the seller from winning back tomorrow the clients they sold you today.
A Methodical Approach to the Purchase
Buying well is not about finding the perfect company; it is about knowing the real company rigorously and reflecting that knowledge in the price, the structure of the transaction and the protections in the contract. That work demands financial, legal and tax expertise operating together, from the first contact with the seller through to completion.
At Ravina Promissora, we support buyers at every stage of an acquisition: preliminary analysis, due diligence, negotiation and contract drafting. And because in many transactions the seller is a business owner preparing to step away, we also support the other side of the table with business succession and readying the company for transfer. If you are considering an acquisition, talk to us and book a meeting with our team.