This article deals with the general conditions and variants of a SPA, but is by no means exhaustive. Some transactions and companies from different industries require different conditions and are often the subject of extensive negotiations between the parties. This article does not take into account the laws of a particular jurisdiction, or antitrust or competition law considerations that may be relevant to certain M&A transactions. In addition, PPS may also be controlled or influenced by existing shareholder agreements between the shareholders of a target company. Pre-closing covenants generally limit what a seller can do before closing. Typically, commitments given by the seller are heavier than those of the buyer because the seller usually retains control of the target until the transaction is completed. As a promise to do or not to do certain things, pre-closing covenants are common in deferred closing transactions in order to protect and maintain the value of the acquired business between the completion of the PPS and the closing of the acquisition. Items marked with an asterisk (*) are more common when all shares of the company are sold. While guarantees are beneficial, the party giving them must be able to help them. When a buyer buys shares, all the guarantees given by the seller are given by him personally. Interpretation is dealt with in the share purchase agreement, which contains definitions of all the terms used in the contract. The sale and purchase of shares are also listed, which covers purchase price adjustments, purchase price breakdown and dispute resolution. The warranties and representations of the buyer and the seller make all the representations that the buyer and the seller sign and claim to be true.
Everything related to employees is also covered, including the terms of their benefits and the treatment of accumulated premiums. The share sale agreement will determine both the number and type of shares to be sold by each shareholder. It will be important for a buyer to understand the type of shares they are buying, as different types of shares may have different rights. For example, for votes, dividends and capital. A share purchase agreement (SPA) is a contract that sets out the terms and conditions of the sale and purchase of shares in a company. An important distinction should be made between the purchase of shares and the purchase of securities. An asset transaction involves the purchase or sale of all or part of a company`s assets, such as equipment, inventory, real estate, contracts or leases. Buying assets can be beneficial because it allows a buyer to be selective about the assets they acquire. In addition, an asset purchase allows a buyer to acquire a company`s assets without the liabilities that would accompany the assets in a share purchase.
In the event of the acquisition of assets, a substantial SD is always required, especially with regard to ownership and privileges over these assets. The completion of an acquisition of shares or assets depends on many considerations and the objectives of the acquirer. A shareholder has prima facie the right to transfer his shares whenever and to whomever he wants. However, this freedom may be considerably restricted by the provisions of the articles. Two common forms of restriction found in the articles of association of private companies are: (a) provisions under which the board of directors should have general or limited authority to refuse to register delegations at its discretion; and (b) pre-emption clauses, which are provisions that require a member to first offer its shares to other designated persons, such as directors or other members. The agreement must describe in detail how the seller should behave after the sale. An important provision is, for example, a clause restricting trade. This prevents the seller from being involved in a competing business for an agreed period of time.
This also gives the new buyer the opportunity to expand the purchased business. A stock sales contract should include the following key terms: Completion mechanisms can be difficult because the parties have to agree on timelines, place of completion, actions, and what to deliver in the end. The latter generally includes all post-completion formalities (i.e., share transfer forms, share certificates, board approvals, and the corporation`s statutory books). Certain meanings must be assigned to specific words in each contract to be accurate or to change the meaning of words commonly used in certain industries or contexts. Although some words or phrases may be defined in the body of a contract, all words or phrases that are critical or ambiguous in meaning or that require lengthy definitions or explanations should be included in the “Definitions” section. This is especially useful for recurring words, phrases, or concepts. Each defined term must first be enclosed in quotation marks so that it is clear that it is a defined term, in bold (so that it is easy to find) and that the first letter of each defined word is capitalized, so that it is clear throughout the agreement that if the word is in such a capital form, it is actually a defined term and is less easily misunderstood (as happened in this article). For example, if “party” is a defined term that refers to a party to the agreement, confusion is avoided when the word “party”, all in lower case, is used to refer to a party other than a party to the agreement. It would be rare for a choice of law provision to be excluded from an SPA (or other cross-border agreement). The absence of a choice of law clause in an SPA would expose the parties to unnecessary costs and complex rules in determining which law to apply, including by examining where the parties are located and where their obligations must be fulfilled. In the context of cross-border mergers and acquisitions, failure to indicate which law governs the SPA could be a disaster when it comes to litigation, especially if the buyer is located in one jurisdiction and the seller is located in another jurisdiction with subsidiaries and assets in several other jurisdictions.
As a seller, you can be held liable if any of the company`s sales guarantees or indemnification is violated. To minimize this liability, the agreement may contain limitations. Typical restrictions include: When a company acquires all or a substantial portion of a target company`s shares, that investor also acquires its liabilities. Therefore, a merger and acquisition transaction is usually accompanied by full due diligence (“DD”), not only to understand what liabilities the acquirer will be exposed to, but also to clarify important information about the seller, such as . B its actual asset base (fixed assets, contracts, finance, human resources and customers, among others). DD is the fundamental audit or investigation of a target company conducted by a buyer to compile and evaluate information that directly affects the decision to acquire. From a legal perspective, DD is typically conducted in relation to company records, general legal claims and disputes related to the target company, intellectual property (“IP”) and trade secrets, labor, anti-money laundering, anti-corruption, data protection, environment and other regulatory compliances that may be relevant to the specific sector of the target company. DD is also performed in relation to the finances of the target company by accountants and auditors. In the case of cross-border mergers and acquisitions where the target has assets and transactions in different countries, DD must be conducted in multiple jurisdictions and carefully coordinated to verify the actual assets and liabilities of the target company against the laws and practices of each site.
Documents and sub-agreements generally consist of a series of documents listed in a schedule attached to an SPA that the parties must provide to each other at closing or before closing in order for a merger and acquisition transaction to proceed, and include, but are not limited to: However, if a party is a “shell company” (i.e., has few or no assets), You should ask the business owners to act as guarantors. The guarantor also concludes the contract for the sale of shares and guarantees the obligations of the company. This minimizes the risk in the event of a problem at a later date and you want to make a claim. An example of this is when a company sells all of its business. .