Buying a Portuguese company: what warranties and indemnities should I insist on?

Hi. You may consider below:

Tax Clearance	Seller provides a tax clearance certificate (Certidão de Dívida Fiscal) covering all periods up to the closing date.	“Seller shall deliver a tax clearance certificate from the Autoridade Tributária confirming that the Target has no outstanding tax liabilities as of the Closing Date.”
Tax Indemnity	Seller indemnifies buyer for any tax assessments arising from periods before closing.	“Seller shall indemnify Buyer for any tax liability relating to the Target arising from periods prior to the Closing Date, up to a cap of €[X] and surviving 24 months.”

 

Sincerly,

A-i-c

When a seller pushes for a "very short SPA with minimal protections" on an 80% stake, that tells you something. Either they don't understand how M&A works—unlikely, if they've built a company worth acquiring—or they understand it perfectly well and would rather the risk sit with you. Push back. What I'll set out below isn't aggressive; it's what any competent buyer would expect in Portugal or anywhere else in Europe.

The fundamental point is this: you're buying shares, not assets. You take the company as it stands, warts and all. An unpaid tax assessment from three years ago, a disgruntled former employee preparing a claim, a customer dispute that hasn't yet landed—all of that becomes yours the moment you sign. The SPA is how you push that risk back to where it belongs.

The heart of your protection lies in the representations and warranties. The seller needs to stand behind statements covering, at minimum: tax compliance (all returns filed, all taxes paid, no pending audits or disputes, no exposures they're aware of but haven't mentioned); employment matters (full compliance with Portuguese labour law—which is heavily protective of employees—disclosure of all staff and contractors, any claims pending or threatened, social security contributions up to date, and particular attention to recent dismissals, which generate wrongful termination claims with uncomfortable frequency); litigation and disputes broadly, including arbitration and regulatory matters, with customer disputes specifically called out given your concerns; the accuracy of the accounts; IP ownership and freedom to operate, which for a tech acquisition is critical—you need comfort on third-party infringement, open-source licensing that might compromise proprietary code, and valid licences for everything the business uses; GDPR compliance, where the exposure for failures can be severe; and material contracts, including crucially any change-of-control provisions that might let customers or suppliers walk away once you close.

On tax specifically, remember that the Portuguese tax authorities have four years to assess additional liabilities—eight years in cases of fraud or significant underreporting. Your warranty period should reflect that reality, not some arbitrary 18-month standard.

Beyond general warranties, you should carve out specific indemnities for any risks that emerge from due diligence. If there's a potential tax exposure that hasn't crystallised, or a customer dispute that's brewing but hasn't formally landed, the seller indemnifies you for that particular matter—no caps, no thresholds.

The seller will want to qualify the warranties through a disclosure letter. That's normal. What's not acceptable is vague or blanket disclosure—"there may be some tax matters" tells you nothing and protects you from nothing. Each disclosure should be specific, documented, and quantifiable.

Given the seller's apparent reluctance to offer standard protections, I would insist on retaining 15–20% of the purchase price in escrow for 18 to 24 months. It's entirely market standard, and it serves two purposes: it concentrates minds during negotiation, and it ensures there's actually money available if a warranty claim arises. Chasing a seller for damages after closing is expensive and uncertain. Better to have the funds sitting in escrow.

On duration: general warranties typically survive 18 to 24 months, but tax and social security warranties should run longer—four years, aligned with the assessment period. Employment claims can surface late; 24 to 36 months is sensible there. As for caps on liability, a seller will push for something at or below the purchase price. For an 80% acquisition, I wouldn't accept any cap below the total consideration you're paying, at least for the first couple of years.

You'll also need a mechanism to ensure the price reflects the business as it actually exists at closing. Either a completion accounts adjustment for net debt and working capital, or a locked box with protection against value leakage between signing and closing. The latter works if the gap is short and you trust the seller not to extract cash in the interim.

Standard conditions precedent would include no material adverse change before closing, receipt of any consents required under change-of-control provisions, and potentially the retention of key employees if the business depends on particular individuals.

Where can you reasonably compromise? Narrowing certain warranties where due diligence has given you genuine comfort. Agreeing sensible de minimis thresholds and baskets before claims bite. Accepting time limitations that reflect real risk periods rather than theoretical ones.

Where should you not compromise? Substantive representations and warranties on tax, employment, and disputes. Meaningful recourse if those warranties prove false. Cash retention or escrow to back it up.

A seller who refuses all of this is either naive about M&A or hiding something. Neither makes for a sound transaction.

My practical recommendation: before you negotiate SPA terms further, conduct proper due diligence—legal, tax, financial. That process will surface specific risks you can then address through tailored protections. A "short SPA" negotiated without that foundation isn't a shortcut. It's an invitation to inherit problems you could have identified, priced, or protected yourself against.