What warranties should a purchaser make in a Share Sale Agreement?

Are you a shareholder of a company? Are you looking to sell your shares? If you answered yes to both questions, read on! This article will explore the types of warranties that should appear in a Share Sale Agreement from a vendor’s perspective. In other words, what warranties will be made by the purchaser to the vendor of the business.

If the purchaser has drafted a share sale agreement for you to sign, amongst other things which need to be covered in a share sale agreement, there should be a detailed suite of warranties to be provided by the purchaser.

Types of Warranties

These warranties may include, but are not limited to, the following:

• the purchaser will be not be in breach of any existing obligations or agreement in completing this transaction;
• the purchaser has full power and capacity to perform all of its obligations under the share sale agreement;
• the purchaser agrees to enter into the company’s existing shareholder agreement (if the company has one available); and
• the purchaser is entering into this share sale agreement on its own account and not as a trustee for another person or entity.

Additional Warranties

If the purchaser is purchasing the shares as a company, you will want some additional warranties from the purchaser. This includes, for example:

• that it is validly incorporated in accordance with the applicable laws;
• that it has not gone into, or is proposed to go into, liquidation; and
• that there is no process for winding-up or dissolution which has been presented or threatened against it.

Similarly, if the purchaser is an individual, you will want a warranty that he or she is not bankrupt, and therefore able to make payment of the purchase price on completion.

Conclusion

As a vendor, you will generally be required to provide a much more detailed suite of warranties – especially if the purchaser is not part of the company already and has not had access to important company information. If you want to know what sort of warranties a purchaser will want from you, stay tuned for our article on Vendor Warranties.

For more information and legal assistance, call LegalVision on 1300 544 755 and get a fixed-fee quote for drafting or reviewing your Share Sale Agreement.