What needs to be covered in a Share Sale Agreement? Part 1

Are you looking to sell the shares in your company? Or perhaps you are looking to purchase shares from a shareholder of a company. Either way, you will need a Share Sale Agreement drafted.

The basics

Firstly, the share sale agreement should set out:

• the parties to the transaction, being, the vendor, the purchaser and the company itself;
• the number of shares being sold from the vendor to the purchaser; and
• the price that the buyer will be paying for the shares.

Vendor’s obligations

The vendor has several obligations before this transaction can be completed. The vendor’s obligations will often include:

• handing over a share transfer form;
• signing a letter of resignation if the vendor was a director and/or employee of the company; and
• returning all company property including any phones, laptops, documents, etc. that may be in his or her possession.

Purchaser’s obligations

Compared to the vendor, the purchaser has fewer obligations prior to completion of the transaction. Generally, the purchaser is simply required to accept the documents and items being provided by the vendor, and pay the purchase price.

Non-disparagement

Non-disparagement clauses are often included so parties are prevented from making negative and/or damaging comments about the other. This is often used when the vendor and purchaser are shareholders of the same company, and one shareholder is leaving by selling his or her shares following an ongoing dispute or failed business relationship.

Indemnities and releases

A share sale agreement often contains a detailed indemnities and release clause.
This clause will set out what the vendor indemnifies the purchaser against, and vice versa, what the purchaser indemnifies the vendor against. For example, the vendor will indemnify and release the purchaser and the company from any monetary claims it may have against the purchaser and the company, prior to the completion of the agreement. On the other hand, the purchaser will indemnify the vendor for any claims which arise in relation to the purchaser and/or the company after the ownership of the shares have been effectively transferred from the vendor to the purchaser.

Conclusion

There are a number of other items which need to be covered in a share sale agreement. These will be covered in Part 2 of this series, stay tuned! If you’d like to speak to a contract lawyer about drafting or reviewing a share sale agreement, you can get in touch with LegalVision by calling us on 1300 544 755!