Due diligence is the process of investigating and verifying a target company before a purchase, sale, merger, or investment — to identify legal, financial, and operational risks before signing. Portugal has no single “due diligence law”: it is a market practice, anchored in a set of legal regimes that define what needs to be checked.
What it means in practice
Before completing the purchase of a company (through the acquisition of shares/quotas — a share deal) or of one of its businesses/assets (an asset deal), the buyer or investor — typically with legal and financial support — reviews the target’s actual situation: contracts in force, pending litigation, tax position, labour obligations, licences and regulatory compliance, and corporate structure.
The goal is not just to confirm what the seller states — it is to uncover hidden liabilities or contingencies that could affect the deal’s value or create liability for the buyer after closing.
Areas typically covered in a Portuguese due diligence
- Corporate — shareholding structure, minutes, shareholders’ agreements, encumbrances on shares/quotas, signing authority. Governed by the Portuguese Commercial Companies Code (Código das Sociedades Comerciais), which also governs the merger and demerger processes themselves.
- Labour/employment — employment contracts, liabilities toward workers, ongoing labour litigation. This area deserves particular attention in Portugal (see below).
- Tax — outstanding tax debts, tax benefits in progress, contingencies with the Tax Authority.
- Contracts and litigation — material contracts with change-of-control clauses, pending or potential disputes.
- Real estate and licensing — title and encumbrances on real estate, licences required for the activity.
- Regulatory and competition — for deals of relevant size, a filing with the Portuguese Competition Authority may be required.
Why labour due diligence is especially decisive in Portugal
One feature of Portuguese law that makes labour due diligence particularly important: when there is a transfer of an undertaking, establishment, or part of one that constitutes an economic unit, the Portuguese Labour Code (Article 285 and following) provides that:
- The employer’s position under the affected employment contracts transfers automatically to the buyer — employees do not need new contracts, and their acquired rights are preserved (pay, seniority, professional category, acquired benefits).
- The seller (transferor) remains jointly and severally liable, for the two years following the transfer, for employee claims that fell due up to the date of the transaction.
In practice, this means labour liabilities not identified during due diligence automatically pass to the new owner of the business under many deal structures — unlike other areas, where liability can more clearly be limited to the seller by contract. It is one reason labour review should not be treated as a secondary annex to due diligence, but as its own dedicated workstream.
Share deal or asset deal — why the choice matters
How a transaction is structured — buying shares/quotas (a share deal) versus buying a set of assets/the business itself (an asset deal) — has different implications for the transfer of liabilities, including labour, tax, and contractual ones. The choice between the two is not merely a matter of form; it directly shapes which risks identified in due diligence the buyer actually inherits.
Frequently asked questions
Is due diligence legally mandatory in Portugal? There is no general legal obligation to conduct due diligence — it is a market practice adopted to manage risk before a transaction. In certain regulated sectors, specific verification or notification obligations may apply.
How long does due diligence take? We do not give a fixed timeframe here — it depends on the size and complexity of the target company, the number of areas under review, and the seller’s readiness to provide information.
Can labour due diligence derail a deal? It can decisively influence price, deal structure (share deal vs. asset deal), or the contractual guarantees required — precisely because, as explained above, certain labour liabilities transfer by operation of law, regardless of what the parties agree between themselves on price.
Official sources
- Portuguese Commercial Companies Code (Código das Sociedades Comerciais) — Diário da República, consolidated legislation
- Portuguese Labour Code (transfer of undertaking regime, Article 285 and following) — Diário da República, consolidated legislation
Contact us
To discuss a company purchase, sale, or merger in Portugal, you can schedule a consultation with PH Advogados.
