Share Purchase Agreements

A share purchase agreement is the key document in a transaction where either all shares in a company are sold or where investors buy some of the shares. In this situation, the contract may also be called an investor agreement and may also require an updated or new shareholders agreement and/or company articles of association.

Before the share sale/purchase agreement is signed, there will usually be a number of important stages, all of which can involve negotiation, legal fees, potential pitfalls and take time. The stages will generally be :-

• Heads of terms/terms sheet
• Due diligence
• Corporate approvals for the sale of shares from other shareholders

Key clauses in a share purchase agreement

Each transaction is different. Negotiation is a key aspect which often continues throughout the transaction, even after the main terms have been agreed. This is an area where experienced lawyers can make a huge difference . The final agreement is the last stage in a process where pre-contract enquiries and due diligence are key.

Some of the key issues and clauses to consider where the transaction is for the purchase of all the shares in a privately owned company include :

• Conditions Precedent - these do not apply in all situations but, where applicable, mean that completion of the transaction is conditional on certain matters being in place, such as tax clearance or regulatory approval.
• Price  and payment - may be very straightforward, but not always. It is quite common for share sale transactions to involve different forms of consideration, such as loan notes and/or deferred payment arrangements based on an earn-out.
• Warranties - the seller will generally try to limit or qualify warranties, which are included in almost all share purchase contracts. Warranties are statements of fact by the seller which, if proven to be incorrect, give the buyer legal rights and remedies. A typical warranty might apply to the accounts being accurate or confirm that the seller is unaware of any matter which could lead to a legal dispute.
• Indemnities - cover specific scenarios where, if the scenario occurs, the seller will reimburse the buyer for the relevant loss, such as if a legal dispute arises involving the company post-completion relating to a situation which occurred pre-completion. Indemnities can provide strong protection for a buyer against specific identified risks.
• Payment terms - it is not unusual for part of an agreed purchase price to be deferred, and there may be an earn-out mechanism included.
• Restrictive covenants - often require tha,t for a set period of time, the seller will remain working in the business and may not work for a competitor or set up a competitive business.
• Tax issues - often dealt with through a tax indemnity or deed, which gives the purchaser protection against tax liabilities that arise from pre-completion periods and were not identified or dealt with during due diligence.
• Disclosure letter – whereby the seller will disclose facts which were not dealt with in due diligence and which the seller does not want to be in breach of the warranties because of.
• Change control – do existing contracts with customers have change of control provisions which may entitle the customers to cancel if the business changes owners?
• Completion and post completion -  money transfer and post-completion formalities, including director approval, stock transfers and share certificates.

How we can help

We work with businesses, shareholders, investors and management teams of different sizes and complexity. Experience means we focus quickly on the issues and strike the right balance between proportionate legal fees, speed and getting the right deal and protections in place for clients.

Get in touch to discuss how our team can help with your share purchase agreement. Our fees are competitive whether it’s drafting, reviewing or advising on the underlying transaction.