When making important business decisions such as purchasing shares in a company, it is critical to have a comprehensive and well-drafted Share Purchase Agreement (SPA) in place. A Share Purchase Agreement is a legal document that outlines the terms and conditions of the sale of a company’s shares from the seller (vendor) to the buyer (purchaser).
Reviewing an SPA is a crucial step in acquiring shares in a company, as it enables you as the buyer to understand the legal and financial implications of the purchase. In this article, we will examine the key elements to consider when reviewing an SPA.
Purchase Price and Payment Terms
The purchase price of the shares and payment terms are critical elements of the SPA. The purchase price should be clearly stated, and any adjustments in the price, such as post-completion price adjustments, should be detailed. The payment terms, such as the payment schedule, mode of payment, and currency in which payment will be made, should also be clearly stated.
Warranties and Representations
Warranties and representations refer to the seller’s promises about the company and its shares being sold. The SPA should outline the warranties and representations being made, and they should be clearly stated, reasonable, and accurate. It is essential to ensure that the seller has the right to sell the shares and that the shares are free from any encumbrances or liabilities.
Conditions precedent are the requirements that must be met before the completion of the sale of shares. The SPA should outline these requirements, which may include the consent of regulatory authorities and obtaining third-party approvals. It is critical to ensure that these conditions are met before completion to avoid any legal and financial liabilities.
Indemnification refers to the right of the buyer to be compensated for any loss suffered as a result of the seller’s breaches of the warranties and representations. The SPA should outline the indemnification provisions and any limitation on the seller’s liability.
Completion mechanisms refer to the process of completing the sale of shares. The SPA should outline the process and timelines for completion, including the transfer of legal title and payment of the purchase price. The SPA should also include provisions for the resolution of any disputes that may arise during completion.
In conclusion, a Share Purchase Agreement is a crucial legal document that must be carefully reviewed before purchasing shares in a company. It is essential to ensure that the SPA meets your objectives and protects your interests as the buyer. Working with a legal professional experienced in reviewing SPA can help ensure that the agreement is thorough and accurate.