Legal Advice

How to Draft Share Purchase Agreement

A draft share purchase agreement is essential when buying shares. Learn how to write one!

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A draft share purchase agreement is an important document used by companies when buying shares from another company. It outlines the terms of the deal and protects both parties. This article will show you how to create a draft share purchase agreement.

Introduction

A share is a unit of ownership in the company. The number of shares held by a shareholder represents the shareholder’s stake in the company. This contract includes both a buyer and a seller.

The buyer wishes to sell its company’s shares to the buyer. The number of shares and the price would be specified in the share purchase agreement. A letter of intent is formed prior to the share purchase agreement. The buyer should conduct some due diligence to ensure that the terms of the letter of intent and the share purchase agreement match. The shareholder’s terms should be identical to those in the letter of intent. Suppose there is any misrepresentation of warranties or liabilities. In that case, necessary legal action and consequences will be taken, or the seller will be required to pay the customer. It is thought to be a less difficult transaction than an asset acquisition agreement.

The following are some of the aspects included in the share purchase agreement:

  • Name of the business
  • Name of the buyer
  • Warranties and representations based on the value of the shares
  • The total number of shares sold
  • Indemnification contract
  • Transaction location.

DRAFT A SHARE PURCHASE AGREEMENT

Few complexities in the share purchase agreement are

  • Warranty misrepresentation that harms the buyer
  • The price and number of shares are being sold
  • Adjustments to the purchase price.

Lock in points

  • The share purchase agreement is a legally enforceable contract that binds the buyer and seller to buy and sell their respective shares
  • When the parties deal with a significant number of objects, a share purchase agreement is typically employed.

Use of share purchase agreement?

A share purchase agreement is employed when a firm or an individual purchases or sells shares in a company with another person or company.

Kind of information and types of shares in the share purchase agreement

A share purchase agreement typically contains:

  • Information on the firm
  • The seller and purchaser of shares
  • A dispute resolution clause
  • Termination
  • The type of shares being sold
  • The number of shares being sold
  • The price of the shares being sold
  • Payment details.

Voting and non-voting shares are the two types of shares.

Non-voting shareholders do not have the privilege of voting on board of directors’ decisions or having a say in policy formulation, whereas voting shareholders do.

Reasons for using share purchase agreement

  • It is a legally binding contract
  • There’s a better chance of increasing revenue through business
  • Before signing, the seller and buyer can make the final decision
  • Benefit from the tax system.

Reasons for not using share purchase agreement

This is the most unusual circumstance in which a share purchase agreement cannot be employed because it protects all parties involved. In the company, there is just one shareholder. It has a limited ability to regulate.

Importance of share purchase agreement

It is significant because it is a legally binding written agreement that will help to reduce misconceptions between the parties. This agreement can demonstrate the sellers’ ownership, giving the buyer confidence. It contains all of the information required for a share transfer. The dispute settlement form includes the seller’s warranties.

Advantages and disadvantages of the share purchase agreement

Some of the advantages include:

  • A share purchase agreement allows for a cost-effective transfer
  • It does away with the need for creditors’ approval.

Some of the disadvantages are :

  • The buyer acquires all assets and liabilities, including all rights and obligations
  • It is critical for the buyer to conduct due diligence in order to uncover previously hidden liabilities, conflicts, asset ownership, and so on.

Five easy steps to file a share purchase agreement

  1. Both parties review the share purchase agreement
  2. Both parties’ signatures are required. If the purchaser is in doubt, a witness can also sign
  3. Copies should be made for the buyer, seller, and company
  4. After payment, the certificate is given
  5. If you meet specific criteria, it will allow you to register.

 

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