How to Create a Share Sale Agreement
Learn how to protect your business interests in a share sale agreement through understanding the key features of a share sale agreement.
Buying shares in a business is one of the ways that a sale of a business can be effected. By entering into a Share Sale Agreement, you ensure that your interests are protected, whether you are the seller or purchaser.
It is important when purchasing or selling aspect of a business that you seek advice from a business purchase/sale lawyer. Through LawPath you will also have access to a customisable and ready to use business sale agreement.
What are some main considerations when creating a Share Sale Agreement?
1. Shares details
As part of the negotiation stage, you will probably reach an agreement on the share sale price and the number of shares you will be purchasing. It is important to ensure that these numbers are reflected correctly on your agreement.
2. TItle, property and risk
Knowing when title, property and risk passes from the seller to the purchaser is important in determine who will be liable if any legal contraventions arise. It is important that both parties understand this clearly, and it is stated in the Share Sale Agreement.
3. Rights and obligations
The seller and purchaser should know their rights and obligations regarding the share sale pre-, during, and post-completion. For example, the purchaser would expect the vendor to manage and conduct the business with care, and maintain the profitability and value of business. On completion, the seller should hand over and complete relevant documentation to give full effect to the sale.
During the share sale process, sensitive information will no doubt be shared between the parties. A confidentiality clause ensures that this information stays between the parties.
To prevent disputes about the circumstances where the seller should indemnify the purchaser, indemnity clauses should be included in your agreement. This provides the grounds for the purchaser to get indemnified if, for example, the seller breaches of terms of contract.
If you are purchasing a substantial share of a business, you would not want the seller to set up a similar business near you and solicit customers and/or suppliers, among other things. Placing types of business, area, and duration restraints on the seller ensures that your newly acquired business can prosper without the added concerns of monitoring the seller.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.