The basics – a well-drafted share purchase agreement serves both the seller and buyer
Docue's share purchase agreement template is an agreement for the sale and purchase of a private company limited by shares and is the main document required for this type of transaction (along with the stock transfer forms which give legal effect to the transfer of the shares).
If you are considering selling or purchasing a company, the sale and purchase of the shares of the “target company” via a share purchase agreement is probably the simplest method. There may be a change in the owner(s) of the shares of the “target company”, but the routine operations carry on (i.e. the property, staff, and agreements remain with the “target company”).
In an ideal world for the seller, they would be able to consider the completion of the transaction as a clear end to their involvement. In the real world, certain liabilities and obligations of the “target company” may be discovered after completion. As a result, a well-drafted share purchase agreement is a vital tool for the buyer to use to ensure that the seller is liable for certain liabilities and obligations of the ”target company” which arise after the completion of the transaction.
Our share purchase agreement template has been drafted by specialist corporate lawyers and provides for the exchange of the share purchase agreement and completion of the sale and purchase of the shares to take place at the same time.
The complex bits (made simple!)
The top 3 key elements of a share purchase agreement template are:
Setting out the parties to the transaction – The share purchase agreement template will identify the buyer and the seller (including their registered office address and company registration number). Similarly, it is also important to clearly identify the “target company” which is being sold. Our share purchase agreement template allows for corporate or individual buyers and sellers, and also enables you to include multiple buyers and sellers if required.
Price, commercial terms, and confidentiality – These terms include:
- setting out the sale price payable by the buyer to the seller to purchase the shares;
- what currency the sale price will be paid in;
- the timescale over which the sale price will be paid, and whether it is paid in one payment or in instalments;
- what shares are being sold
- the obligations of the buyer and seller regarding the transaction;
- the confidentiality provisions applicable to the transaction; and
- restrictions that apply to the seller after the transaction.
- Extensive protections for the buyer – Our share purchase agreement template includes various protections for the buyer, if required, (such as the seller’s disclosure of key details about the “target company”). In addition, there is the option for the seller to provide warranties (i.e. promises) to the buyer about key areas of the “target company” (such as the affairs and assets).
The English law principle of “buyer beware” applies to a share purchase and so aside from the warranties, indemnities and other buyer protections within the share purchase agreement, the buyer has limited protection. It is therefore important for the buyer to carry out due diligence on the “target company” and to then ensure the seller gives appropriate warranties within the share purchase agreement based on the results of that due diligence.
The warranties given by the seller within a share purchase agreement depend on what has been agreed between the buyer and the seller and what the buyer has identified as areas of risk in its due diligence. However, there are crucial warranties which are commonly given by the seller within a share purchase agreement and these cover key areas such as the ownership of the shares, litigation, and insolvency.
A share purchase agreement also usually includes a post-sale remedy for the buyer if any warranties given by the seller are untrue. In other words, if a warranty given by the seller within the share purchase agreement is later discovered to be untrue, then the buyer may have the right to bring a claim against the seller to recover a portion of the purchase price of the shares.
The two key benefits of Docue's share purchase agreement template
Reduces the chances of costly legal disputes – A share purchase agreement gives certainty to the buyer and the seller in relation to their rights, obligations, and liabilities regarding the sale and purchase of the shares of the “target company”. This gives clarity and the parties should know where they stand from the outset. As a result, this lowers the probability of disputes arising later down the line.
Increases the likelihood of completing the deal – Although there is no legal requirement to enter into a share purchase agreement to buy or sell the shares of the “target company”, it is strongly encouraged that buyers and sellers do so. Buying a business is a big commitment and so a buyer is considerably more likely to proceed with the purchase if there is a share purchase agreement setting out all the protections which apply (e.g. seller warranties).
The action points – Docue's share purchase agreement template
In a nutshell, if you are buying or selling a company make sure you put the relevant documentation in place. A share purchase agreement is a “must have” for these transactions and without it the parties are exposed to many risks and uncertainties, particularly the buyer.
Check out our dynamic lawyer-drafted share purchase agreement template. Our intelligent template builder technology and built-in drafting guidelines will allow you to create a share purchase agreement bespoke to your deal in a matter of clicks!
Buying and selling companies is a complex and expensive arena but drafting the share purchase agreement doesn’t have to be. Docue is here to make the complex simple, and facilitate the completion of corporate deals at an affordable cost and over an efficient timescale by allowing businesses to leverage our revolutionary legal document technology.
Tags: share purchase agreement, share purchase agreement template, share sale, corporate transaction, share purchase, selling shares, SPA