The Impact of Legal Aspects on Buying Companies

Buying a company involves much more than negotiating a price. Legal aspects are what ensure that the transaction is safe, transparent, and without surprises after signing — and it is often where the biggest risks are hidden. This guide covers the main legal points to consider when acquiring a company in Portugal, from contracts to the buyer's liability. It does not replace legal advice: for any legal or tax decision, always validate with a lawyer or accountant.

Legal due diligence: the foundation of a safe purchase

Before closing the deal, a legal due diligence is essential — the detailed analysis of the documents and the legal situation of the target company, to identify hidden risks and liabilities.

Contracts and obligations in force

• Review of contracts with customers, suppliers, and partners, paying attention to clauses that may be affected by the change of ownership (for example, change of control clauses).

• Financial obligations: loans, debts, leases, and guarantees provided.

Legal proceedings and disputes

Check if the company is involved in legal, administrative, or arbitration proceedings. Ongoing litigation can turn into significant liabilities in the future.

Intellectual property

Confirm that trademarks, patents, domains, and other intangible assets are properly registered and protected — often, this is where much of the business value lies.

For a practical checklist for this phase, see our due diligence checklist for buying a company.

Purchase and sale agreement: essential clauses

The contract formalizes the transaction and must be drafted carefully to protect both parties and avoid future disputes.

Object of the sale

Clearly specify what is being sold: tangible assets, intangible assets, and any liabilities included.

Payment conditions

Detail the total amount, the payment schedule, and any adjustments related to future performance (earn-outs).

Representations and warranties

Include the warranties given by the seller — absence of hidden liabilities, tax and labor compliance — which serve as the basis for indemnification if something does not match what was declared.

Non-compete clauses

Establish restrictions that prevent the seller from opening a competing business immediately after the sale, protecting the value you acquired.

Specific sector regulation

Depending on the activity, there are specific rules that must be complied with.

Licenses and authorizations

Confirm that the company has all the necessary licenses and permits. The lack of licenses can lead to fines or suspension of activity.

Environmental compliance

In sectors such as industry or agriculture, check for the absence of hidden environmental liabilities, which can be very costly.

Labor obligations

Analyze employment contracts and confirm compliance with obligations regarding salaries, benefits, and Social Security.

Legal liability of the buyer

When acquiring a company, the buyer may inherit responsibilities related to the company's history — especially when buying shares or stocks.

Tax liabilities

Undeclared tax debts may be demanded from the new owner. Confirm that all tax obligations are up to date.

Labor debts

Pending labor liabilities may transfer to the buyer. A detailed audit helps identify them in time.

Indemnification clauses

Negotiate clauses that hold the seller responsible for undisclosed liabilities that arise after the purchase.

How to structure the transaction: shares vs. assets

The way to structure the deal has a direct impact on legal and tax risk.

• Purchase of shares: acquires the company in its entirety, including its history and liabilities.

• Asset purchase (transfer): acquires only the desired assets, with a different risk profile regarding liabilities.

Each route has distinct tax and legal implications and should be decided on a case-by-case basis, with professional support. We explained the differences in the guide on transfer vs. company purchase. If the operation involves merger or incorporation, there are additional requirements (approval from partners and specific registrations) to comply with.

Legal advice: a necessary investment

Having a lawyer specialized in mergers and acquisitions is essential to properly handle all legal aspects. A good consultant reviews and drafts contracts, identifies risks, and represents you in more complex negotiations. The cost of this support is almost always much lower than that of an undetected legal error.

Frequently asked questions about the legal aspects of buying

What legal aspects should I check before buying a company?

The main ones are: legal due diligence (contracts, litigation, intellectual property), the purchase and sale agreement with essential clauses (object, payment, warranties, non-compete), sector regulation (licenses, environment, labor obligations), and the responsibilities that the buyer may inherit (tax and labor liabilities). All must be validated by a lawyer.

Does the buyer inherit the company's debts?

It depends on the form of the transaction. In the purchase of shares, the buyer acquires the company with its history, potentially inheriting tax and labor debts, even those prior to the purchase. In the asset purchase (transfer), the risk profile is different. It is a decision that should be structured with legal and tax support.

What are representations and warranties in the contract?

They are clauses in which the seller states facts about the company (for example, that there are no hidden liabilities or that the tax situation is regularized) and assumes responsibility if they prove false. They serve to protect the buyer from surprises after the purchase and are one of the most important parts of the contract.

Do I really need a lawyer to buy a company?

It is highly recommended. Buying a company involves complex contracts and legal and tax risks that an experienced professional helps identify and mitigate. The cost of advice is usually a small fraction of the transaction value and avoids much more expensive problems.

Next step

Looking for the right company? See the companies for sale in Portugal. And to frame these topics in the complete process, also see how to buy a company.