A Share Purchase Agreement is a legal contract that is created between two organizations when the former is selling a part or whole of its shares to another organization in exchange for raising certain amount of funds or to organize a financial restructuring. The purpose of this agreement is to act as a legal proof of a transaction taking place between both organizations. The contract outlines that the Purchaser has bought a part of the business from The Company who is selling the shares.
Some of the key terms mentioned in this contract include the credentials of the organization or company selling the shares also known as The Company, the credentials of the company buying the shares also known as the Purchaser and important dates of the transaction.
When Do You Need a Share Purchase Agreement?
The most common use of a Share Purchase Agreement can be found in situations such as when the Company wants to organize a financial restructuring, is shutting down business, is being merged with another organization or when it is being acquired by a new entity.
The important thing to note here is that all the existing contracts which lies inside the seller organization remains the same and nothing changes because of the implementation of the new one.
Inclusions in Share Purchase Agreement
- Parties Involved: In the formation of this contract, mostly two parties are involved. The first party is the seller organization, known as The Company and the second party is the purchasing organization, known as The Purchaser.
- Effective Dates: The contract mentions the date from which this contract will come into effect, when the sale will start, by when the sale should be closed among other details.
- Where does it Apply: The contract is legally enforceable within the boundaries of the state, city, or county where is has been issued.
How to Draft a Share Purchase Agreement
Kindly follow the below mentioned steps to draw a Share Purchase Agreement:
- Organize a meeting between both the organizations. Discuss upon the terms and conditions of the sale, including details of how many shares will be sold, how much percentage of the business will be transferred and how much funds will be issued for the same
- Once the terms and conditions and all other finer details have been discussed, reach out to a legal term and ask them to draft a Share Purchase Agreement for your organization.
- Cross verify and check all the details with both organizations, after which collect the required signatures from both the stakeholders.
Benefits of Share Purchase Agreement
The benefits of having a Share Purchase Agreement are many. Mentioned below are the most significant ones.
Pros of having a Share Purchase Agreement
This document acts as a legal proof of a transaction taking place between both the organizations and if there is a need the same can be produced in a court of Justice.
The contract clearly outlines the terms and conditions of the sale along with important details like when the sale will begin and end, how much business will be transferred and how much funds will be issued, so that both the stakeholders are well aware of all the details.
Cons of not having a Share Purchase Agreement
1. In the absence of this legal agreement, both parties stand to lose if the matter is ever taken in court due to lapse in terms or in specifications mentioned.
Key Terms & Clauses in a Share Purchase Agreement
- Disclaimers: Both the parties need to fulfill certain disclaimers to each other before the sale begins and this section of the contract outlines the details of the same.
- Notices: Before, during and after the sale, certain notices will be issued to both the stakeholders and this part of the contract contains the details of the same.
- Remedies: In the case of a lapse in terms and conditions or a default in payment, certain remedies need to be issued to either of the parties and this section contains the details of the same.
- Obligations: Both the parties need to fulfill a mutually decided list of obligations and this section of the contract states the same.
Sample Draft of Share Purchase Agreement
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