Checklist: what to include in your share purchase agreement for both buyers and sellers
The checklist below sets out the key information to consider when you're buying a company (or selling a company) and are therefore creating or negotiating a share purchase agreement (SPA).
Key clauses to include in your SPA
1. Parties' details
The SPA will identify the buyer(s) and the seller(s) so it is clear exactly who the outgoing and incoming parties are. Docue’s share purchase agreement template allows for corporate or individual buyers and sellers, and also enables you to include multiple buyers and sellers if required.
2. Target company information
It is important to make sure it is clear in the SPA which company’s shares are being sold. This will include the full company name and registration number, details of its share capital and any other relevant information (e.g. details of charges or directors details).
3. Sale and purchase of sale shares
The buyer will agree in the SPA to buying the company, and the seller will agree to selling the company. This type of clause will usually make it clear that the buyer will be entitled to all rights and advantages attaching to the share being sold, including dividends, distributions and any return of capital declared, paid or made in respect of the shares being sold post-completion.
It is also common to include a clause whereby the seller waives all pre-emption and similar rights over the shares being sold, to ensure that the shares are being sold free from encumbrances.
4. Consideration and payment terms
When buying a company, one of the key pieces of information about the purchase will be the agreed purchase price (also known as the consideration for the purchase). It is therefore critical to document the price, together with agreed payment terms, in the SPA. For example, this could include whether the purchase price will be due in one lump sum on a specified date, or whether it is payable by instalments.
5. Completion mechanics
The point at which the share sale will take effect when buying a company (and when the buyer will become the new owner of the target company) is known as “completion”. The SPA will set out when and where completion will take place.
This type of clause will also typically include any actions that need to be taken in order for completion to take place e.g. for the sellers to convey a board meeting of the directors of the target company approving the terms of the sale or to deliver certain documents to the buyer (e.g. statutory books).
Buying a company is not without risks. Warranties are a form of 'legal promise’ that a seller gives to a buyer to provide comfort to the buyer as to the state of the business at completion. If untrue, the buyer can claim contractual damages to the extent that it can prove loss resulting from the breach of warranty. An award of damages for breach of warranty will aim to restore the buyer to the position that it would have been in if the warranty had not been breached.
The warranties that are included could range from minimum basic title warranties or, depending on the nature of the business, can be extended to include more detailed warranties relating to various aspects of the company’s business.
Buying a company can, by its very nature, include the sharing of sensitive and confidential information. It is therefore important to include a confidentiality clause that obliges both the buyer and seller to keep any confidential information they receive in connection with the agreement a secret.
8. Restrictions on the seller
It is common for a buyer of a business to want the seller to agree to certain restrictions, for example, so that they cannot set up a competing business against the buyer following completion or solicit the employees of the target company.
Find out more about share sales and share purchase agreements by reading this comprehensive guide.
How can Docue help you?
If you’re buying a company (or selling a company) and are ready to create your own share purchase agreement, you can find Docue’s dynamic template here, which includes all of the above elements that can be customised to suit your transaction.
Tags: buying a company, selling a company
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