A Share Sale Agreement, also known as a Share Purchase Agreement (SPA), is a legally binding contract used in transactions where one party (the seller) agrees to sell shares in a company to another party (the buyer). It outlines the terms and conditions for the sale, including the rights, obligations, and protections for both parties.
Parties Involved: Full legal names and details of the buyer and seller, including any entities involved.
Description of the Shares: The specific shares being sold, such as the number of shares, class of shares, and price per share. Additionally, it should specify the percentage of ownership the shares represent in the company.
The total purchase price for the shares and how payment will be made (e.g., lump sum, instalment, etc.). The payment method should also be specified (bank transfer, escrow account, etc.). Any adjustments to the price, such as working capital adjustments, should also be included.
Any conditions that must be satisfied before the sale can proceed, such as obtaining regulatory approvals or third-party consents.
The seller’s representations should include statements about the company’s legal status, financial condition, and compliance with laws to ensure the buyer is fully informed. The buyer’s representations should confirm the buyer’s legal right to purchase the shares.
No hidden liabilities: Assurance that the company doesn’t have undisclosed liabilities.
Covenants: Ongoing obligations agreed upon by both parties, both before and after the transaction.
These may include:
• The seller’s obligation to continue managing the business until the transfer.
• Restrictions on the seller’s ability to compete with the company (non-compete clause).
• Non-solicitation clauses (to prevent the seller from poaching employees or customers).
Specifies when and how the transfer will be finalised, including the exchange of money and shares.
If the purchase price may change after closing (for example, depending on financial statements or other metrics), the method for adjusting the price.
Provisions for the seller to indemnify the buyer for any loss resulting from breaches of the seller’s representations, warranties, or covenants.
In some cases, a portion of the purchase price may be held in escrow to cover potential liabilities or ensure the seller’s obligations are met.
Mechanisms for resolving any conflicts or disputes that may arise during or after the transaction (e.g., mediation, arbitration, or litigation).
Specifies the legal system and courts that will govern the agreement and resolve any disputes.
Conditions under which either party may terminate the agreement before completion of the transaction.
Ensures that sensitive information remains confidential during and after the transaction. Non-disclosure clauses are essential to protect sensitive information during and after a transaction.
• Earnout Clauses: These clauses allow the buyer to receive additional compensation based on the company’s future performance.
• Material Adverse Change (MAC) Clauses: These clauses give the buyer the right to exit the deal or renegotiate the price if there’s a significant negative change in the company’s situation between signing and closing.
• Right of First Refusal: This clause gives the buyer the right to purchase additional shares in the future before the seller offers them to a third party.
A share sale agreement is important for several reasons:
• It provides protection for both parties by clearly defining their rights and obligations.
• It ensures legal certainty by having everything in writing.
• It protects both parties from future disputes or claims by ensuring that all terms of the sale are agreed upon.