Your ultimate guide to share sales (including lawyer-drafted templates)

What is a share sale?

A company sale can take effect in two main ways:

1. through the sale of shares in that company (using a share sale agreement); or

2. through the sale and transfer of a business and its assets (using a business sales agreement).

Find out more about the differences between asset sales and share sales here.

With a share sale, the buyer acquires the shares of the company directly from the existing shareholder(s). The sale involves the transfer of ownership rights (by transferring ownership of the shares), which can include voting rights, entitlement to dividends and all other rights shareholders in the company are entitled to. Share sales are common when buying and selling private limited companies.

What type of legal document is needed for a share sale?

Share sale agreements (also known as share purchase agreements or SPAs) are one of the most important documents in corporate sales. A share sale agreement is a legally binding contract that outlines the terms and conditions governing the sale and purchase of shares in a company and is used to formalise the agreement for sale between the seller and the buyer.

Share sale agreements cover the commercial aspects of the sale (including the price and payment terms), the legal mechanics of the sale and protections for the buyer through warranties.

Find out about the other documents that are used for corporate sales in the section titled “What other documents will be needed for a share sale?” below.

What does a share sale agreement include?

A share sale and purchase agreement needs to be tailored to the specifics of the transaction in question, but typically includes:

1. Commercial details of the sale - this will include details of the company being acquired (known as the target company), details of the shares in the target company and the price being paid to acquire the target company;

2. Legal mechanics of the sale - the share sale agreement will set out the process for the sale being completed, including details of when completion will take place and any actions that must be taken prior to the completion of the sale;

3. Seller obligations - the obligations on the seller will be set out in the share sale agreement and will include actions that must be taken prior to completion of the sale (known as conditions precedent) and actions that must be taken post-completion (known as conditions subsequent). This could include convening a board meeting approving the sale and delivery of certain documents to the buyer (such as statutory books or directors' resignation letters);

4. Buyer protections - the buyer will be offered legal protections via warranties from the seller about the target company. 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.

Find out more about the key clauses to include by using this handy checklist.

How do I negotiate a share sale agreement?

Negotiating a share sale agreement involves careful consideration of various terms and conditions to ensure that the interests of both the buyer and the seller are addressed. This can include:

1. Carrying out due diligence - due diligence is the process of conducting a thorough investigation and interrogation of the target company. It is typically performed by the acquiring party (the buyer) to assess the value, risks and legal aspects associated with the share sale. The purpose of due diligence is to gather relevant information, identify any potential risks or liabilities, and make informed decisions regarding the share sale. This information will be key when it comes to negotiating the terms of the share sale agreement and the level of protection required.

2. Negotiating valuation, purchase price and payment terms - these are the key commercial elements of a corporate sale and can be heavily negotiated. Agreeing on the valuation is a critical aspect and may involve negotiations on the purchase price, including any adjustments based on the financial performance of the company.

3. Agreeing conditions precedent - it is important to identify and agree on any conditions that must be met before the sale can proceed and, if necessary, set them out in the share sale agreement. These conditions may include regulatory approvals, third-party consents or the resolution of specific issues discovered during due diligence.

The negotiation process can often be helped by first agreeing heads of terms that set out the key aspects of the transaction. Having clear heads of terms in place can speed up the rest of the transaction and avoid long back-and-forths between the parties over specific points later down the line, as the underlying principles have been agreed up-front.

What other documents will be needed for a share sale?

1. Stock transfer form - a stock transfer form is the document that gives legal effect to the transfer of shares and may have to be sent to the HMRC to be “stamped”. Find out more here.

2. Board minutes - the sale will need to be approved by the board of directors of the target company. Often, the buyer will require a copy of the board meeting from such meeting to ensure that they have evidence that all approvals have been given.

3. Resignation letter - the management of the target company may change as a result of a share sale. If so, the buyer may require evidence that certain directors have resigned from the board of directors. This can be done via a resignation letter.

4. Share certificate- a share certificate sets out how many shares a person owns in a company. Under company law, a company has a duty to provide a shareholder with a certificate for any shares issued or transferred to them.

How can Docue help? Use our share sale agreement template

Drafted by lawyers: Given the complexity and significance of share transactions, having a well-drafted share sale agreement is essential to protect the interests of both the buyer and the seller. With Docue's share sale agreement template, you can create a top-quality share sale agreement in minutes. The service includes model clauses designed by business lawyers to help you draft the contract yourself and tailor it to your needs.

E-signing included: Signatures can be collected electronically, and all contracts you make are saved in your company's own contract account.

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