A practical guide to understanding the share purchase agreement for a single corporate seller
When it comes to buying or selling a business, the share purchase agreement (SPA) is one of the most important documents in the process. It outlines the terms and conditions of the sale, and is typically a lengthy and complex document. This is especially true when dealing with a single corporate seller.
In this article, we`ll take a closer look at what goes into a typical SPA for a single corporate seller, and provide some tips for understanding and negotiating these agreements.
Key terms to know
Before diving into the specifics of the SPA, it`s important to understand some key terms that are commonly used in these agreements:
– Vendor: This is the seller of the shares. In the case of a single corporate seller, the vendor is usually the corporation itself.
– Purchaser: This is the buyer of the shares.
– Shares: These are the shares being sold. In a single corporate seller scenario, this will typically be all of the shares in the corporation.
– Purchase price: This is the amount the purchaser will pay for the shares.
– Completion date: This is the date on which the sale is completed and the shares are transferred to the purchaser.
Overview of the SPA
The SPA for a single corporate seller will typically cover the following main areas:
1. Purchase price and payment terms. This section will specify the amount the purchaser will pay for the shares, as well as the timing and method of payment.
2. Representations and warranties. The vendor will make certain statements about the business being sold, such as that it owns all of its assets and has no outstanding liabilities or litigation. These statements are intended to provide assurance to the purchaser and will be backed up by indemnification provisions.
3. Covenants. These are promises by the vendor to take or refrain from taking certain actions prior to completion of the sale. For example, the vendor might agree to obtain any necessary approvals or consents for the sale, or to continue operating the business in the ordinary course pending completion.
4. Conditions precedent. These are conditions that must be satisfied before the sale can be completed. Typical conditions precedent for a single corporate seller might include obtaining any necessary shareholder or board approvals, and obtaining any necessary consents or approvals from third parties.
5. Post-completion matters. This section covers matters that need to be addressed after the sale is completed, such as the transfer of any contracts or licenses, and the settlement of any outstanding liabilities.
Tips for understanding and negotiating the SPA
If you`re unfamiliar with SPAs, it can feel overwhelming to try to understand and negotiate one. Here are a few tips to keep in mind:
1. Get professional help. Unless you have a lot of experience with these agreements, it`s a good idea to hire a lawyer or other professional to help you navigate the process. They can help you understand the terms of the agreement and negotiate more favorable terms for you.
2. Focus on the big picture. It`s easy to get bogged down in the details of the SPA, but it`s important to keep the big picture in mind. What are your goals for the sale? What risks are you willing to accept, and what risks are non-negotiable?
3. Be prepared to negotiate. Very few SPAs are signed as-is without any negotiation. Be prepared to ask for changes to the agreement, and to compromise on certain terms if necessary.
4. Read the agreement carefully. Don`t just rely on your lawyer`s summary of the agreement – take the time to read it carefully yourself. Make sure you understand each section and how it applies to your situation.
Conclusion
The SPA for a single corporate seller is a complex document that requires careful attention to detail. By understanding the key terms and main sections of the agreement, and getting professional help if needed, you can ensure that the sale process goes smoothly and that your interests are protected.
