If you own a business with other shareholders, where multiple parties are involved, it is best to be prepared for a situation where one or more shareholders want to leave the business. This is a 3 part series on what to consider when a shareholder leaves. Article 1 discussed administrative and company secretarial requirements. Article 3 will consider protecting confidential information, intellectual property and imposing a non-compete clause.

What type of sale of shares agreement do I need?

A sale of shares agreement can be simple, or detailed, depending on the circumstances. Where the seller and buyer know the company well, then it can be a simple agreement. Where the buyer is new to the company, then a more detailed agreement is generally required.

What does the sale of shares agreement need to address?

The sale of shares agreement may address the following issues, including detailed warranties for a sale of a large tranche or sale by a founder:

  • Price
  • Tranches: How and when the shares will be purchased, e.g. all in one parcel, or over a period of time. A seller will generally want to sell their shares in one parcel.
  • Earn out: Any earn-out provisions, for example, will the seller be required to stay for a period of time and work in the business, and be paid out according to how the business performs? A buyer will generally want earn-out provisions so that the price paid depends on how the business performs over a period of time, e.g. 1 to 3 years.
  • Company obligations: The company’s obligations on sale, including to carry out the administrative and company secretarial requirements.
  • Completion details: Including what each party will provide, for example, whether the seller will provide their previous share certificate, and any company credit or debit card, etc.
  • Title: Warranties that the seller owns and has good title to the shares.
  • Operations: Warranties about the business operations. These can be simple or detailed, depending on the buyer’s requirements. Common and important warranties include that the business has been conducted according to law, that the business is solvent, and that the business has all required regulatory approval to operate.
  • Tax: Warranties about the business tax, including that the business has paid tax when due and payable, and correctly calculated tax requirements.
  • Employees: Warranties about the employees, including that superannuation is up to date, and that there are no employee claims against the company.
  • Litigation: Warranties about litigation, including that there is no litigation against the company.
  • Intellectual property: Intellectual property protection, including that the seller assigns all intellectual property regarding the business, to the business.
  • Confidentiality provisions – see Part 3
  • Restraint of Trade – see Part 3
  • Releases: Releases, including that the seller has no claims against the business for a suite of potential claims including employment issues and debts.
  • Limitations: Limitations on buyers and sellers liability including for tax on the sale of the shares.
  • Disputes: A dispute resolution clause.

Conclusion

At LegalVision we have specialist commercial lawyers who can assist you to draft a sale and purchase of shares agreement and to negotiate the terms to protect your interests in the sale or purchase.

LegalVision has high-quality experienced business lawyers. Please call our office on 1300 544 755. We will happily provide you with a fixed-fee quote and an obligation-free consultation.

Ursula Hogben

Next Steps

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