Share purchase and subscription agreement
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- Guidance notes included
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About this agreement
This is a comprehensive agreement for a new shareholder - an individual or another company - to subscribe for new shares in a private limited company at the same time as buying shares from one or more other existing shareholders.
It is most likely to be used when a new shareholder wishes to take majority control.
The company may be in any industry and of any size.
The document assumes the subscriber pays in cash but holds back an agreed sum until after the next set of accounts. If the accounting profit is not as promised, then the final balancing payment is reduced.
This agreement provides the same protection to the subscriber as you would expect if the whole company were being bought outright. You have the benefit of 140 warranties (less those you decide to edit out). The penalty reduction of balance due by you is calculated by reference to a simple, flexible formula.
There is an option for one of the selling shareholders to be a trustee (as a trustee, he cannot give warranties).
As drawn, the document binds all the shareholders to the warranties, but you could decide that only shareholder-directors should be at risk.
The document provides the option to reference any loan the buyer may be making. The terms of any loans will need to be covered in separate loan agreements.
These are explained in more detail here, but simply put, 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 shares subscription agreement templates in the number of warranties included.
Warranties are important for two reasons.
The first is that they protect the new subscriber, who does not have the same information as the directors and other shareholders about the state (and value) of the company.
The second is that they can improve the subscriber’s position. Because it is normal practice for subscribers to demand warranties, shareholders often give them without being sure about whether the situation is as warranted. New subscribers can take advantage by asking for more warranties than they might need, and later seeking compensation for those that turn out to be false.
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. Existing shareholders will, obviously, want to limit the warranties 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 new shares are issued at the time of sale, and the purchaser also subscribes for some or all of those new shares.
If there is no new issue and the buyer purchases the shares of an existing shareholder only, the agreement only needs to cover the purchase of the shares.
If there is only a new subscription then this agreement should be used. We also offer a simpler agreement for less complicated transactions that don’t require the warranties that the other documents have.
You may also need to put in place a shareholder agreement between the new shareholders (or the existing ones before the transaction takes place), administration documents for formalising approval and service agreements for new directors who are appointed as a result of the new shareholder buying in.
- Definitions and interpretation
- Agreement for sale and subscription
- Calculation of minimum profit on which the retention depends
- Completion and delivery of documents
- All about warranties
- Restrictions on other shareholders against competing
- Protection for selling shareholders
- The guarantee
- Various legal provisions usual in a document of this type
- Warranties - select from140, in neat, sensible categories for you to choose and use
This document was written by a solicitor for Net Lawman. It complies with current English law.
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