The sale or purchase of the shares in a company is never something to be undertaken lightly. Since the value of the shares is underpinned by the assets, liabilities and goodwill of the company’s business, it is essential to define clearly what is being sold and on what terms. A sale of shares agreement fulfils this function and ensures that both the seller and the purchaser are in no doubt as to their respective rights and obligations. In this way, any potential for future disputes or uncertainty is removed. Some of the more important issues included in the agreement are the following:
- The parties are described in full and provision is made for up to four sellers in a single sale agreement (further sellers can be accommodated by completing an additional sale of shares agreement on the same terms);
- A careful definition of the shares being sold, as well as all of the rights and obligations attaching to the shares, is included;
- Detailed provisions are included dealing with the calculation and payment of the purchase price and any penalties for late payment;
- A comprehensive range of warranties which protect the purchaser against any undisclosed facts of relevance to the shares and/or the purchase price paid;
- The manner in which loan accounts, interest and suretyships previously granted by the seller are to be dealt with;
- The delivery of the shares and the completion of all documents associated therewith;
- The allocation of dividends during transitional phases and any associated tax liabilities;
- Mechanisms for the effective resolution of any disputes which may arise.
Through a careful recordal of the above aspects (and a full range of additional terms), the parties are assured of a full and proper understanding of their respective rights and obligations in relation to the sale of the shares. In this way, disputes are avoided and a successful transaction is ensured.