A Share purchase
agreement (SPA) is a type of agreement under which terms and conditions are set
out in relation to sale and purchase of shares in a company. It is mainly a
contract of sale and purchase of share capital of the company. Under this,
buyer is liable to pay certain amount i.e. Purchase price and thereafter share
purchase agreement is executed. There is a requirement to review stamp duty
under the relevant jurisdiction. This agreement shall be signed by both the
parties i.e. seller and purchaser. Share purchase agreement consist the clauses
which deals with the purchaser’s rights & obligations in the capacity of shareholder.
Core Elements of
Share Purchase Agreement
Ø Description of the shares to be acquired
Ø Purchase Price
Ø Representation & warranties
Ø Obligation regarding Confidentiality
Ø Non-Competition
Why there is a
need of Share Purchase Agreement?
Share purchase of
a company constitutes that shareholders are the owners of the company. At the
time shares are purchased, no existing contract is altered. In case shares are
sold by the shareholder in a company then there is a break of relationship between
the company and the shareholder. Share Purchase Agreement
defines the terms & conditions between the company and shareholder.
Following below
mentioned matters will be dealt under share purchase agreement:
1. Parties to the
Share Purchase Agreement
This type of
agreement comprises seller & acquirer.
2. Recitals
Recital of an
agreement defines the relationship among the parties. Object and roles of the
parties are also defined there under.
3. Share Transfer
Whenever share
transfer takes place in a company, ownership will pass to the transferee. There
will be description of rights & liabilities of the transferee.
4. Condition
Precedent
There must be an
exhaustive clause which will provide necessary permissions & permits. It
should clearly state the person responsible for obtaining each.
5. Confidentiality
There should be
clause which will be regarding confidential information shared among the
parties involved.
6. Force Majeure
This clause is
applicable in case of unwanted situation arise such as financial crisis. It
strengthens the interest of parties involved in agreement.
7. Dispute Resolution
In case of any
dispute among the parties, it shall be referred in arbitration to resolve
dispute.
8. Jurisdiction
There will be an applicability
of Indian laws where the registered office of the company is situated.
Advantages of
Share Purchase Agreement
1. No involvement of
third party
Shares can be
purchased without the intervention of any third party. Therefore the process of
share purchase is much distinct in comparison to asset purchase.
2. No liability for
debts
There will be no
liability of seller of shares for the company’s debts. As company has a separate
legal personality from its directors and shareholders. Whereas in comparison to
asset sale, all the current liabilities will be kept by the seller, unless negotiations
have been made with the buyer to take them over with the business
Disadvantages of
Share Purchase Agreement
1. Inheriting
outstanding problems
Seller’s company
will be inherited by the buyer which implies that problems will also be
inherited which is in existence at the date of sale.
2. Risk
There is an
involvement of greater risk in comparison to asset purchase as buyer inherits a
company. Warranties are also there which are required to protect the buyer.
Source url - http://enterslice.over-blog.com/2018/07/everything-you-need-to-know-about-share-purchase-agreement.html
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