Share purchase agreement
This is an agreement for the sale of a majority or a minority shareholding in a private company for cash (rather than shares). The company could be in any industry, and the seller and the buyer could be private individuals or other companies. The document comes with an extensive choice of warranties designed to protect the value of your investment and give you the greatest legal advantage.
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About this document
It is usually the buyer who prepares the agreement for the purchase of shares in a company. The reason is that he or she bears most risk and can choose on what conditions the transaction occurs.
But because there is great advantage for the seller in presenting the first version, we have included provisions that benefit both sides. Our notes guide you as to which ones strengthen your position and which ones favour the other side.
This document is likely to be used by an external third party (human or corporate) to buy the shares of an existing shareholder.
Strong protection for the buyer
The document provides the same high level of protection to the buyer that you would expect for the sale of a whole company including a choice of 140 warranties, a penalty payback provision if net profit is less than a certain agreed sum, and limited warranties from remaining shareholders.
Advantage for the seller
The document can also be used by a seller, either to produce an agreement that doesn’t favour the buyer as strongly, or as a guidance document to understand what might be seen as fair and reasonable compared to the document now presented by the buyer or his solicitors.
The agreement provides the framework to protect the interests of the selling shareholders to the extent that you choose. For example, there is an option to include a guarantor and an option for one of the selling shareholders to be a trustee (as a trustee, he cannot give full warranties). If the seller doesn’t present the agreement to the puchaser, he may still wish to include such clauses in the buyer’s document.
A warranty is a promise that something is as it is described, and which, if untrue, can allow the side relying on that information to seek compensation.
This document differs from many other share sale agreement templates in the number of warranties included.
Warranties are important for two reasons.
The first is that they protect the purchaser, who does not have the same information as the seller about the state (and value) of the company.
The second is that they can improve the buyer’s position. Because it is normal practice for buyers to demand warranties, sellers often give them without being sure about whether the situation is as warranted. Buyers can take advantage by asking for more warranties than they might need, and later seeking compensation for those that turn out to be false.
You can read more about how they might be used in this type of transaction.
We provide a very full set of warranties, in plain English so it is easy to choose whether you want each to be given or not. Sellers will, obviously, want to limit those given.
The law relating to this agreement
The framework of the deal is the 2006 Companies Act. Within that framework, there are no special requirements as to what your deal should be.
This agreement is for a sale where no new shares are issued - the buyer simply purchases the shares owned by someone else.
Sometimes, you may want to change relative ownership proportions at the same time as the sale by subscribing to newly issued shares. For example, you may buy the shares of a departing shareholder and then invest additional equity to obtain a majority shareholding. In that case, you will need a purchase and subscription agreement.
Alternatively, you may be just want to invest along side existing shareholders. In that situation, you just need a subscription agreement. We also sell a simple subscription agreement for uncomplicated transactions that don’t require the warranties that the other documents have.
If you unsure, you may wish to read more about which agreement might best suit your transaction.
- Definitions and interpretation
- Agreement for sale
- Calculation of minimum profit
- Completion of the deal and delivery of documents
- Warranties: sellers, trustee, non-sellers
- Restrictive agreement to prevent sellers from competing afresh
- Sellers' protection provisions
- Various legal provisions usual in a document of this type
This document was written by a solicitor for Net Lawman. It complies with current English law.
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