A Share Purchase Agreement (SPA) is a legally binding contract that outlines the terms and conditions of the sale and purchase of shares in a company. The agreement needs to contain several key pieces of information to ensure clarity and protect the rights and obligations of both parties involved in the transaction. Here are the essential pieces of information that should be included in a Share Purchase Agreement:
- Parties: Clearly identify the parties involved in the transaction, i.e., the buyer(s) and the seller(s), along with their legal names, addresses, and other relevant contact information.
- Recitals: Provide the background and context of the transaction, explaining the intentions and reasons for the sale and purchase of shares.
- Definitions: Define key terms used throughout the agreement to ensure both parties have a common understanding of the terms’ meanings.
- Purchase and Sale of Shares: Specify the details of the share purchase, including the number of shares being sold, the purchase price, any adjustments to the price, and the payment terms (e.g., lump sum, installment, or escrow).
- Representations and Warranties: Both the buyer and seller will make a set of statements about the company, its assets, liabilities, financial condition, legal standing, and other relevant information. These representations and warranties are used to establish the accuracy of information provided and allocate risk between the parties.
- Covenants: Include promises and commitments made by both parties to undertake or refrain from certain actions before or after the completion of the share purchase. This may include non-compete clauses, confidentiality agreements, and other specific obligations.
- Conditions Precedent: List the conditions that must be met before the transaction can be completed, such as regulatory approvals, due diligence, or other specific requirements.
- Indemnification: Outline the rights and obligations of the parties regarding indemnification for any losses, damages, or liabilities that may arise from breaches of the representations and warranties or other specific circumstances.
- Termination: Specify the conditions under which the agreement can be terminated before the transaction is completed.
- Governing Law and Jurisdiction: Clearly state the jurisdiction and laws that will govern the interpretation and enforcement of the agreement.
- Confidentiality: Define the obligations of both parties to keep the details of the transaction and any sensitive information about the company confidential.
- Miscellaneous Provisions: Include various other clauses, such as amendments, waivers, notices, and the entire agreement clause.
- Signatures: Ensure that the agreement is signed by authorized representatives of both parties to indicate their acceptance and commitment to the terms outlined in the agreement.
It’s crucial to consult with legal professionals when drafting or reviewing a Share Purchase Agreement, as the specific terms and conditions may vary depending on the specific circumstances of the deal. Additionally, the inclusion of other provisions may be necessary based on the unique aspects of the transaction.
How to Start a Share Purchase Agreement?
Starting a Share Purchase Agreement (SPA) involves several steps to ensure that the process is properly initiated and all necessary information is gathered. Here’s a general outline of how to start a share purchase agreement:
- Letter of Intent (LOI): Before diving into the formal agreement, parties often begin with a non-binding Letter of Intent (LOI) or Memorandum of Understanding (MOU). The LOI outlines the preliminary terms and conditions of the proposed share purchase and serves as an expression of interest from the buyer to the seller. While the LOI is not legally binding, it sets the framework for the SPA negotiations.
- Conduct Due Diligence: The buyer will perform due diligence on the target company. This involves a thorough examination of the company’s financial records, legal contracts, operations, assets, liabilities, and other aspects to assess the company’s value and potential risks. The information gathered during due diligence is crucial for drafting the SPA.
- Engage Legal Professionals: It is essential to engage legal professionals experienced in M&A transactions to draft the Share Purchase Agreement. Both the buyer and the seller should have their respective legal representatives to protect their interests and ensure the agreement complies with relevant laws and regulations.
- Negotiation: Parties will negotiate the terms and conditions of the share purchase, including the purchase price, payment terms, representations and warranties, covenants, and other key provisions. This process may take several rounds of discussions until both parties reach a mutually acceptable agreement.
- Draft the SPA: Based on the terms agreed upon during negotiations and the information obtained from due diligence, the legal professionals will draft the Share Purchase Agreement. The agreement should be comprehensive and cover all the relevant aspects of the transaction to avoid any ambiguities.
- Review and Approval: Both parties should carefully review the drafted SPA to ensure it accurately reflects their intentions and that there are no errors or omissions. Any concerns or questions should be addressed during this stage.
- Sign the SPA: Once both parties are satisfied with the terms and have received legal advice, they can proceed to sign the Share Purchase Agreement. The signing can be done in counterparts, where each party signs separate but identical copies of the document.
- Execution and Completion: The share purchase transaction is completed on the closing date specified in the agreement. This typically involves the transfer of shares and the payment of the purchase price according to the agreed-upon terms.
Remember that the specific steps and requirements for starting a Share Sale and Purchase Agreement may vary depending on the jurisdiction and the complexity of the transaction. It’s essential to seek legal and financial advice throughout the process to ensure a smooth and legally sound transaction.