Overview of a Share Purchase Agreement

What is a Share Purchase Agreement?

A Share Purchase Agreement is a legal contract for the sale and purchase of shares in a company.

In this agreement, the seller gives extensive representations and warranties on the various aspects of the company being sold.

Under a Share Purchase Agreement, the buyer pays the purchase price and the parties execute share transfer documents at completion. It is important to check stamping requirements and procedures under the relevant jurisdiction.

Who drafts a Share Purchase Agreement?

It is drafted while buying or selling the shares. Normally it is drafted by the buyer who is interested in buying the shares of a company and it should clearly describe to whom and for how much the share has been sold.

Who needs a Share Purchase Agreement?

Any person or business engaged in buying and selling shares needs a share purchase agreement. For example: In a partnership firm if one of the partners has decided to leave the company and sell their shares then another partner can buy or acquire their share through this agreement.

What are the things to include in a Share Purchase Agreement?

A share purchase agreement helps businesses and individuals to buy and sell the shares. The important things to include  are:

Name of the buyer and seller: It is very important to disclose the name and address of both buyer and seller at the top of this agreement. The date on which both parties have agreed to buy or sell the shares is also written with their full address.

Representations and warranties of the buyer and seller: It should be clearly mentioned that the seller has transferred their rights and sold the shares under their name. any liability would be now under the responsibility of the new owner of the shares.

Dividend: Any dividend generated before selling the shares belongs to the seller and the dividend generated after buying the share would be earned by the buyer of the shares.

Applicable law: It should be clearly mentioned in a share purchase agreement under which governing or applicable law the shares have been sold. This will protect the legal rights of both buyer and seller of the shares.

Who decides how many shares a company can issue?

Normally when a company is starting its operation, the total number of shares that it can issue is decided. However, in some cases, those numbers need to be adjusted, at that time shareholders’ voters decide whether to increase or decrease the number of shares.

Conclusion

A share purchase agreement helps both buyer and seller to buy or sell the shares through legal means. It will clearly describe what is being sold, to whom, and for how much with any other duties and liabilities.

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