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How Share Purchase Agreement differ from other Business Agreement

Narendra Kumar

| Updated: Apr 15, 2019 | Category: Share purchase agreement

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How share purchase agreement differs from other business agreement is a must to know thing for business aspirant. One must know the basic difference between Share purchase agreement and other business agreement like shareholder’s agreement, Share Purchase Shareholder Agreement, Business Transfer Agreement. Especially if you starting your own the business you would definitely require these agreements. With complete understanding of the differences between these agreements you can solidify the company’s legal status.

What is the Shareholder’s Agreement?

Normally the Shareholders are considered as the most important and the owners of a company or organization. When an agreement is entered then it would describe obligations rights between the company and the shareholders and call as the Shareholder’s Agreement. Shareholder’s agreement would give the complete aspects for dissolving problem as well as disputes that are taken place for shareholders.

What is the Need of Shareholder’s Agreement?

  1. No one could guarantee that every process would be going as planned under any circumstances. Therefore, the shareholder’s agreement would be helpful for easily resolving the problem or disputes that mainly occurred between the two parties.
  2. Shareholder’s Agreement maintains the steady relationship between shareholders as well as the company. Therefore, it is also mainly helpful for protecting the investment made by shareholder along with laying down rules as well as regulation for shareholder and other related parties.
  3. Shareholder’s Agreement mainly regulates the shareholder’s agreement under any kind of circumstances so that this would definitely give the legality in handling everything. Shareholder’s Agreement needs to be drafted with keeping everything in much so that each of the service or person differs with the varied opinion.
  4. For resolving any kind of issues in the Shareholder’s agreement, most of the companies would mainly opt for the court settlement like conciliation, arbitration or the negotiation between shareholder as well as the company.

What is the Share Purchase Agreement?

Share Purchase Agreement is the agreement that has been made between 2 parties. In this Share Purchase Agreement, the seller would mainly agree on selling mentioned shares for buyers at a price. The main aim of this Share Purchase Agreement is to prove that every rules and regulation will be displayed in the agreement are also agreed in the mutual aspects. This agreement mainly specifies with consideration with the required number of shares that are sold to the extent. Each of the conditions precedents along with the covenants will be made by the parties.

What is the Need of Share Purchase Agreement?

Normally, the Share Purchase Agreement is an essential business practice in which the shareholder rights, duties, other varied terms are written. There could be may the number of uninvited consequence would be taking place with the absence of these documents.

Share Purchase Agreement would definitely give the complete option for the parties to easily protect their own interest even before sharing the transferred to the extent.

What is the Commercial Intent of the Business Transfer Agreement?

Normally, the Business Transfer Agreement will be made between the 2 parties when the business is made along with the liabilities and assets that are transferred for other parties. In fact, these transactions will be known as the slump sale.

Slump sale will be carried by the company with the business structuring to the highest excellent. It mainly carried with the company alone with the third party. They are mainly structured as the conveying with document and agreement that sells.

When it mainly structured an agreement for selling that includes the details regarding the amount along with payment for consideration. When consideration for slump sale is mainly enabled with the shares that are held to easily appellate body having the slum sale and they are termed as the extensive option for exchange.

  • Assets such as machinery, inventory, equipment, and capital
  • Clients as well as a customer list
  • Liabilities such as employee salaries, loans, and gratuities
  • Suppliers
  • Employees
  • Intellectual Rights such as the Copyrights and Patents

With the higher asset that is mainly excluded with transferring mainly referred to as the ‘excluded assets’ for agreement. With easily transferring the assets without transfer of liabilities that are not enabled with slum sale

Commercial Intent of Share Purchase Shareholder Agreement: SPCA

The Shareholder Agreement and Share Purchase Agreement has been clubbed together to offer the agreement which is mainly known as the SPCA or Share Purchase Shareholders Agreement.

To understand the commercial intent of Share purchase shareholder agreement clear understanding of below is a must.

Share Purchase Agreement:

Share Purchase Agreement mainly entered in the parties when a company likes to transfer the share along with many numbers of other individual or company. The Share Purchase Agreement is mainly enabled by the conveyance document.

Shareholders Agreement:

The Shareholders Agreement mainly defined with the relationship between shareholder and company enabled with the other aspects. Based on the different rights as well as obligations from shareholders that mainly have the instrumental aspects to secure shareholder.

Most of the companies and shareholders mainly prefer to enter into the agreement based on the Companies Act that mainly enabled all other aspects with the provision.  It mainly creates transparency based on the regards to rights with an obligation for both parties that immensely helps the litigation.

Shareholders Share Purchase Agreement

With Shareholders Share Purchase Agreement, it mainly has the transaction of sale in equity from 1 party to many numbers of parties. It is considered as the final and binding document for sale to conveniently share in the highest manner.

Some of the following important transactions are carried based on the structured with the PASHA:

  • Individual purchasing of shares
  • Financial investors purchasing the Minority Stake
  • Company investor acquiring the controlling stake
  • Buyout by the Private Equity Fund

What are the Important Aspects of Business Transfer Agreement?

  • Business Transfer Agreement is a Sale Deed that is called an end document for transfer without any inter-dependency of parties
  • Transferor and transferee does not need the assistance apart from any kind of transition period
  • Utmost priority in transferee would receive business in the best way as they represent value
  • The seller can put the secured position for receiving better consideration
  • Buyer is secured for receiving business to be represented by the seller

What are the Important Aspects of the Shareholder Agreement and the Share Purchase Agreement?

  • Shareholder Agreement and Share Purchase Agreement is the common aspectsthat initiate and established the relation between 2 parties so the company that is investing wild be involved in the process.
  • Structuring the transaction will be based on the arrangement between the two parties
  • The intent of one party with the rise in the investment will be served to extend.
  • An important level of returns with other parties mainly acquired based on the rests that are made and performance to a greater extent.

What is the Taxation on the Transactions in BTA?

  • Taxation is based on accordance with u/s 50 B in the Income Tax Act
  • Net worth for slump sale is the aggregate value of total assets undertaking with the value of liabilities that are undertaking based on account
  • Slump sale will be made with holding company with 100% subsidiary

What is the Taxation on CISPA?

  • When a share is held for less than a year, it would give short term capital gain
  • Shares in short-term capital assets include u/s 111A(1)(b)(i) of the Income Tax Act

Conclusion

With the complete intent to simplify entire documentation needs for the organization, it is best to contact the experts to ease the whole documentation process. Specialists would answer all your questions about each agreement to be executed including the stamp duty involved .

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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