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Purchasing shares means the purchase of a business’ operating business. A share purchase agreement either outlines the:

  1. purchase of all shares in a business; or
  2. the purchase of some shares in a business.

A typical share purchase agreement will contain specific provisions that set out the terms and conditions relating to the purchase of shares. To help you understand share purchase agreements, this article will take you through the key provisions included in these sale agreements.

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What Does a Share Purchase Agreement Cover?

Price and Payment

An obvious but key clause will outline the number of shares that are being purchased and the price of these shares. This price might either be an agreed, fixed sum or subject to amendment. For example, if the business continues to perform better than at the time of the agreement, the purchase price may be adjustable to reflect this.

A share purchase agreement may also contain provisions for the method of how the buyer will make payments and the dates for these payments. This is important because the date payment is affected might impact the official transfer of sale. 

Conditions Precedent to Sale

A share purchase agreement might include conditions precedent to the sale. For example, the share price might be subject to first receiving regulatory approval. Accordingly, it is a good idea to list all actions required by both parties before the transaction to add a layer of protection to a contact. A timeline for meeting these conditions might also be necessary to include. 

From a buyer’s perspective, in particular, having conditions precedent to sale is critical. 

Completion Arrangements 

Share purchase agreements usually provide terms that will finalise the completion of a share purchase. This might include the payment of stamp duty or the filing of official company notices. Your agreement will typically outline these requirements, so there is no room for debate about who has what responsibilities when the purchase is finalised.

Warranties

It is standard procedure to include representations and warranties of the seller and buyer in a share purchase agreement. This refers to providing statements and assertions of facts that the seller and buyer agree to be true. This is a critical part of a share purchase agreement. Unfortunately, there are situations where a buyer may later discover that the seller’s representations and warranties about the business are untrue. Hence, there is potential for the buyer to take legal action.

For example, the company and seller write statements about the business of the company and its dealings. Other representations and warranties would cover:

  • any ongoing disputes or litigation; 
  • the company’s tax status; or 
  • any specific representations or warranty that the purchaser would need to know.

The buyer should also provide representations and warranties, such as their ability to purchase the company’s shares and fulfil any of their duties and obligations under the agreement. 

Restraints

In the context of a share purchase agreement, restraint refers to clauses that prevent the seller from competing with the buyer for an agreed period following the purchase of shares. This may take the form of a non-competition clause that prevents the seller from setting up a business, resulting in competition for the buyer. 

Other Provisions 

In addition to the standard clauses, it is ultimately up to the parties to the agreement in deciding what is important to include. Some other common clauses to include are: 

  • an indemnity clause; 
  • tax provisions; or 
  • confidentiality agreements. 

An indemnity clause specifies who will incur any losses if there is a breach of any part of the agreement. It might also provide for dispute resolution provisions and specify any limitations claims. 

Further, tax provisions might protect any unexpected tax liabilities that occur due to a lack of due diligence.

Finally, confidentiality clauses are a simple clause to include in a share purchase agreement that will prevent all parties from disclosing certain information.

Key Takeaways

A typical share purchase agreement will contain specific provisions that set out the terms and conditions relating to purchasing shares. This might be either all or part of the shares of a company. Some key terms to include are:

  • price and payment;
  • conditions precedent to sale;
  • completion arrangements;
  • warranties;
  • restraints; and
  • miscellaneous provisions (such as indemnity clauses, tax provisions or confidentiality agreements).

If you need assistance preparing a share purchase agreement, our experienced lawyers can help. You can get in touch with LegalVision’s business lawyers by calling 1300 544 755 or by filling out the form on this page.

Frequently Asked Questions

What is a share purchase agreement?

A share purchase agreement is a document that transfers company shares from one party to another. This might include the purchase of all shares from a company or some shares.

What are the key terms of a share purchase agreement?

A typical agreement will contain specific provisions that set out the terms and conditions relating to purchasing shares. This might include provisions for price and payment, conditions precedent to sale, completion arrangements, warranties, restraints and miscellaneous provisions (such as indemnity clauses, tax provisions or confidentiality agreements).

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