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A Share purchase agreement Format (SPA) is a formal agreement between a purchaser of shares in the company and the buyer, laying down the required terms and conditions. This type of transaction shall include the purchase of a part of the company’s operating business.
Upon the transfer of shares as per the agreement’s terms, the ownership shall pass on to the buyer. It shall bring to the buyer a certain amount of control and powers in the target business.
Through a Share Purchase Agreement, the buyer steps in the place of the seller. The other elements of the company- contracts, properties, etc do not alter in any manner. A share sale/ transfer thus involve no third party involvement and thus is a discreet transaction. Also, in share sale/ transfer, the seller gives up the liabilities of his part (of debts of the business) to the buyer.
SPA may be executed between a single buyer and seller or may be between a single seller and multiple buyers. In case of multiple buyers, if they are companies created only for the purpose of effecting a SPA (or Shell Companies), thus lacking administrative or financial credibility, it is essential to ensure that heads of such companies (or Principals) are made Covenants/Guarantors so as to protect the compensation or payment in cases of non-payment or fraud of any kind.
A Share Purchase Agreement Format is a considered to be an essential business practice since a casual approach to such transactions and absence of a legally enforceable agreement can bring about consequences which are not desirable to both parties and those related to the transaction of share purchase/transfer. The SPA ensures that due care is taken while formulating the terms and mentioning the rights and liabilities of the parties.
Some of the advantages are as follows:
A Share Purchase Agreement Format shall include the following:
8. RESTRICTIVE COVENANTS- It may include: a non-solicitation clause, prohibiting the seller from soliciting the buyer’s suppliers/ customer & a non-competitive clause restricting the seller in establishing or engaging in a business which may compete with the buyer; for a set period of time as settled.
9. It may set forth the conditions to be fulfilled by both the parties before the execution of the agreement is made. These shall be covered by conditions PRECEDENT. These may be in the form of obligations of the parties, authorizations, permits or permissions to be obtained by the respective parties.10. CONDITIONS SUBSEQUENT: The agreement also safeguards the parties the future defaults, if made by either. That is if the parties fail to abide by the terms set forth in the agreement, the other party shall have a mechanism to turn to and get the terms enforced.11. DISPUTE RESOLUTION AND ARBITRATION: An essential clause that deals with the method to resolve the legal disputes which may arise between the parties in the future. Arbitration is always preferred after the parties fail to work around the dispute to reach an amicable solution.12. JURISDICTION AND GOVERNING LAW: This explains the specific jurisdiction in which the dispute resolution be invoked in case any legal disputes should arise.13. NOTICE: Where the notices pursuant to the Agreement be delivered.14. Statement of SEVERABILITY AND BINDING EFFECT of the agreement.15. There may be a CONFIDENTIALITY CLAUSE if the parties feel the need of such.16. Waivers, if any applicable.
The Share Purchase Agreement Format is such that it requires the expertise of a professional for the reason that it has a variety of implication which may not be apparent at first. The drafting and usage of various provisions and terms required to be unambiguous and shall not put anyone party at loss. It thus is essential that the parties must consult a legal professional as well as an Accountant so as to understand the effect and ramification of the clauses mentioned therein.
It is easy and cost saving for the parties does not having a professional draft the agreement but it must be understood that each transaction is unique and must be dealt with individually. The drafting of the Share Purchase Agreement Format requires a professional view.
If you are purchasing or selling shares in the company with another person or business, use a share purchase agreement. The share purchase agreement format is available in PDF format for download.
Read our article: Sample of Joint Venture Agreement Format
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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