Overview of a Share Sale Agreement
What is a Share Sale Agreement?
A Share Sale Agreement is a legal contract that sets out various terms in which the company shares are sold.
In a Share Sale Agreement, the seller gives extensive representations and warranties on the various aspects of the company being sold.
In this agreement, the buyer pays the selling 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 Sale Agreement?
A Share Sale Agreement is drafted while buying or selling the shares. Normally it is drafted by the seller who is interested in selling the shares of a company. It should clearly describe to whom and for how much the share has been sold.
Who needs a Share Sale Agreement?
Any person or business engaged in buying and selling shares needs a share sale agreement. For example, in a partnership firm, if one of the partners has decided to leave the company and sell their shares, they can do so through this agreement. Having one will protect both parties in case of any dispute that may arise in the future.
What are the things to include in a Share Sale Agreement?
The important things to include are:
Price and Payments: This includes the price on which the shares have been sold and the payments plan both parties have agreed upon.
Name of the buyer and seller: It is very important to disclose the name and address of both buyer and seller. 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.
The applicable law on arrangement completion: It should be clearly mentioned in a share sale 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.
A share sale 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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