Shareholders Purchase Agreement(SPA)
- To raise capital
- Terms and conditions for purchasing the company’s share
- Drafting of agreement
- Stamped duty on SPA
- Professional’s Advice
- Simple online process
Introduction
In order to grow a business new investors are introduced to the business to raise capital. However, introducing the new people to the company and empowering them with the rights to vote in the decision-making process of the Company makes it vulnerable and invitation to numerous threats. Hence in such a case creation of a legal document in that place can prove beneficial not only for the company but also the new shareholders being admitted.
A Share Purchase Agreement (SPA) is a legal document that outlines the terms and conditions governing the sale and purchase of shares in a company. This agreement is crucial in mergers and acquisitions, allowing shareholders to agree on the terms of the sale and ensuring a transparent and legally binding transaction.
It’s important for both the buyer and the seller to seek legal advice during the negotiation and drafting of a Share Purchase Agreement to ensure that the document adequately protects their interests and complies with applicable laws. Legal professionals play a crucial role in facilitating a fair and transparent transaction between parties.
Advantages Of Share Purchase Agreement
Legal Clarity and Formality
An SPA is a legally binding document that provides a formal framework for the sale and purchase of shares. It clearly outlines the terms and conditions of the transaction, helping to avoid misunderstandings or ambiguities. By putting the agreement in writing, it provides a solid legal foundation for the deal.
Risk Allocation Through Representations and Warranties
The SPA includes representations and warranties made by the seller regarding various aspects of the company, such as its financial health, legal standing, and operations. These assurances help the buyer make an informed decision and allocate risks appropriately. If any of the representations or warranties are later found to be untrue, the buyer may have recourse through indemnification provisions.
Structured Due Diligence Process
The SPA often follows a due diligence process, allowing the buyer to thoroughly examine the company's books, contracts, operations, and legal standing. This process helps the buyer make an informed decision about the acquisition and may uncover any potential issues that need to be addressed before closing the deal.
Clear Closing Process and Conditions
The SPA includes provisions detailing the conditions precedent that must be fulfilled before the transaction can be completed. This might include obtaining regulatory approvals, securing financing, or obtaining shareholder consent. The document also outlines the specific steps involved in the closing process, providing a clear roadmap for the finalization of the deal.
Process of Drafting of Shareholders Purchase Agreement(SPA)
Placing request
Drafting of agreement
Sharing of Ist draft
Sharing of Final Agreement
Importance Of Share purchase Agreement
Legal Framework and Formality
The SPA serves as a legally binding contract between the buyer and the seller. By clearly outlining the terms and conditions of the share sale, it provides a formal and legal framework for the transaction. This formality helps in minimizing misunderstandings and disputes that may arise during or after the acquisition.
Risk Allocation and Protections
The SPA includes representations and warranties made by the seller regarding various aspects of the company being sold, such as its financial health, legal standing, and operational status. These assurances help the buyer make informed decisions and allocate risks appropriately. If any of the representations or warranties are later found to be untrue, the SPA typically includes indemnification provisions, providing a mechanism for the buyer to seek compensation.
Key Contents of Share Purchase Agreement
- Details of the Parties to the Agreement
- Description of the shares being sold, including type and number.
- Confidentiality Clause
- Disclosures of any known issues or risks.
- Clear delineation of any assumed liabilities or responsibilities by the buyer.
- List of conditions that must be met before the transaction can be completed
- Provisions outlining the seller's responsibility to compensate the buyer for losses resulting from breaches of representations and warranties.
- Dividend Distribution schedule
- Provisions for transfer of securities