A share purchase agreement (SPA) is a legal document that outlines the terms and conditions of a transaction in which one party purchases shares in a company from another party. In English law, an SPA is used to govern the sale of shares in a private limited company. Here, we will discuss the key provisions of an SPA and the considerations that need to be taken into account.
The key provisions of an SPA typically include the following:
1. Parties Involved – The SPA will identify the parties involved in the transaction, including the name of the company, the seller and the buyer, and any other parties involved in the transaction.
2. Purchase Price – The SPA will outline the purchase price of the shares being sold, along with any contingencies, such as the payment terms and the method of payment.
3. Representations and Warranties – The SPA will include representations and warranties from the seller regarding the company being sold. These may include financial statements and tax records, company ownership, and any outstanding legal issues or liabilities.
4. Closing Conditions – The SPA will outline the conditions that need to be satisfied before the transaction can be completed. These may include obtaining necessary approvals, clearing any legal issues, or securing financing.
5. Indemnification – The SPA will provide for indemnification of the buyer in the event that any of the representations and warranties made by the seller prove to be false.
6. Post-Closing Obligations – The SPA will outline any obligations that the parties have after the transaction is completed, such as the transfer of ownership of the shares and the payment of any outstanding obligations.
When creating an SPA, it is important to ensure that it complies with English law and that all necessary legal requirements are met. This may require the services of a legal professional experienced in share purchase agreements.
In addition to legal compliance, there are several other considerations that need to be taken into account when creating an SPA. These may include:
1. Due Diligence – Before entering into an SPA, the buyer should conduct due diligence on the company being purchased to ensure that they have a full understanding of its financial and legal status.
2. Tax Implications – The parties should consider the tax implications of the transaction and seek professional advice where necessary.
3. Valuation – The purchase price of the shares should be determined through careful valuation to ensure that it represents a fair market value.
4. Escrow – Consideration should be given to placing a portion of the purchase price into an escrow account to protect against any future liabilities or disputes.
In conclusion, an SPA is a vital legal document that governs the sale of shares in a company under English law. It is important to ensure that the SPA complies with all legal requirements and that all necessary considerations are taken into account to protect the interests of both parties involved. If you are considering entering into an SPA, it is recommended that you seek the advice of a legal professional experienced in share purchase agreements to guide you through the process.