The essential difference
In the acquisition of shares, what changes hands is the company. The buyer becomes a shareholder (sócio ou acionista). The company remains the same legal person, with the same identification number, the same contracts, the same history and the same liabilities, known and unknown.
In the trespasse, what changes hands is the establishment. The universality of assets, rights and relations organised for the carrying on of the activity. The selling company continues to exist and continues to hold whatever was not transferred.
The practical formulation is this: whoever buys shares buys the past. Whoever buys the establishment buys the activity.
What this means for the seller
In a sale of shares, the seller leaves the company. The seller ceases to be a shareholder. The seller ceases to answer for the company, with the important reservation of the contractual warranties given to the buyer. Those warranties are the centre of the negotiation, because it is through them that the buyer seeks protection from the past being acquired.
The proceeds of the sale are received by the shareholder, and the applicable tax framework is that of capital gains on securities (mais-valias mobiliárias).
In the trespasse, the seller keeps the company. The price is received within the company, not personally. The seller is left with a company without activity, with the proceeds of the sale, and with every liability that was not transferred. If that value is to reach the personal sphere, there is an additional step to plan.
Why the buyer almost always prefers the trespasse
Because the past is not inherited.
In the acquisition of shares, the buyer acquires a company with a tax, social security, employment and contractual history that may contain liabilities the due diligence did not reveal. Due diligence reduces that risk. It does not eliminate it.
In the trespasse, the buyer acquires identified elements. What was not identified, as a rule, stays behind.
There are relevant exceptions, and they need to be known. Contractual positions under employment contracts transfer with the establishment, and there are regimes of joint and several liability in employment and tax matters that cut across the transaction. A trespasse is not a blank sheet.
Why the seller almost always prefers the sale of shares
Because the seller leaves clean, and because the proceeds reach the personal sphere in a single step.
This asymmetry is the true subject of the negotiation in almost every transaction of this nature. It is not the price. It is who is left with the risk of the unknown.
When a negotiation stalls, it almost always stalls here, and it stalls because the structure was discussed after the price had already been agreed.
Where the discussion is settled
In practice, it is settled in one of three places.
In the price. The structure less favourable to the seller is compensated with price. It is the simplest solution and the most frequent one.
In the warranties. In a sale of shares, the seller gives representations and warranties on the state of the company, with caps on value and limits in time. Part of the price may be held back for a set period.
In the perimeter. In the trespasse, what comes across and what stays behind is defined with precision. Contracts, licences, stock, equipment, brand, customer base, employees. Each element is a decision, and each element left undecided is a dispute deferred.
What to prepare before the first conversation
Whichever the route, five things shorten the process substantially.
Accounts for the last three financial years, with an explanation of the items that are not self-explanatory.
Tax and social security position regularised, or identified and quantified. A liability that is known and acknowledged can be negotiated. A liability discovered by the buyer during due diligence costs far more than it is worth, because it destroys confidence in everything else.
Relevant contracts, with attention to the clauses that require consent on a change of control. They are the most common cause of delay.
Employment position, including length of service, fixed term contracts and accrued liabilities.
An answer to the question of dependence. How much of the business depends on the presence of the seller, and what happens in the twelve months following departure. This is the question that determines the price in small and medium sized businesses, and it is almost never prepared.
The timetable
A transaction of this nature, with documentation prepared and a seller who has decided, typically takes between three and six months from the first conversation to the notarial deed (escritura).
Without documentation prepared, it takes longer. With a seller who has not yet decided whether to sell, it does not take: it stops.
This text describes the general framework applicable in Portugal at the date of publication and does not constitute legal or tax advice.