PORTUGAL Law and Practice Contributed by: Diana Ribeiro Duarte, Pedro Capitão Barbosa and Catarina Almeida Andrade, Morais Leitão, Galvão Teles, Soares da Silva & Associados
contractual and therefore enforceable only against the management’s counterparties) or through shares car - rying special rights (where the protection is enforce - able against the company and, therefore, company resolutions in violation of such “special rights” may be challenged on that basis). 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights Majority Participation When a private equity fund shareholder holds the majority interest in the target company, typical con - trol mechanisms are provided by statute (particularly the ability to appoint the members of the target com - pany’s corporate bodies on one’s own – there is no statutory provision providing proportional representa - tion in management or audit bodies under Portuguese corporate law). Minority Participation When the private equity fund shareholder has a minor - ity participation in the target company, board appoint - ment rights in shareholders’ agreements (proportional or not) are commonly negotiated. Veto rights at the shareholder level are also commonly requested in critical matters (eg, reorganisations, further financing and capital increases and decreases), along with infor - mation rights (eg, the right to receive monthly infor - mation on accounts and key performance indicators) and exit rights (pre-emption rights, tag-along rights, drag-along rights, etc). 9.2 Shareholder Liability A Portuguese company (extending to EU compa - nies) that wholly owns another Portuguese company is responsible for compliance with the subsidiary’s obligations both before and after it has been incor - porated. However, it is doubtful that this provision applies to private equity funds (since these funds are not incorporated and have a “proprietary” legal regime of their own that does not include a similar provision). Nevertheless, there are (rare) cases where it would be conceivable (applying certain general civil law princi - ples) for the legal personality of the portfolio company
or SPV incorporated for the acquisition to be disre - garded, and the “corporate veil pierced”. This requires proof of behaviour that is fraudulent or obviously in contravention of good faith principles.
10. Exits 10.1 Types of Exit
It is typical for a private equity investment to be held for a period of four to seven years in Portugal before an exit occurs. Anecdotal evidence indicates that the most common forms of exit in recent years were trade sales and secondary sales to other asset managers. A write-off may also occur from time to time. There have not yet been any initial public offerings (IPOs) or dual-track processes initiated by private Drag-along rights are typically included in invest - ment documentation to ensure that management and (often) other co-investors are required to sell if an exit opportunity arises. In Portugal, the drag threshold can vary depending on the specific terms negotiated between the parties. It is often the case that a drag threshold falls within the range of 50–75% of the total outstanding shares. This means that if shareholders holding this percentage (or more) of the company’s shares agree to a sale, they can force the remaining shareholders to participate in the transaction through the drag-along rights. equity sponsors in Portugal. 10.2 Drag and Tag Rights Conversely, the typical tag threshold (if there is one at all) is usually set at a lower percentage, commonly around 50% of the total outstanding shares. If share - holders holding this percentage or more decide to sell their shares, minority shareholders can exercise their tag-along rights to join the sale and sell their shares on the same terms. It is not common for management and institutional investors to have different tag thresholds.
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