A seller may often prefer to sell the shares in a business rather than simply its assets because it means that everything goes, reducing their liability. However, it is important for both parties to ensure that the share transfer agreement includes provisions to adequately protect their rights.
Before the agreement is drawn up, the purchaser’s solicitor will carry out due diligence enquiries. This is the process of finding out exactly what the buyer of a business is taking on. It includes in-depth consideration of available financial and legal information and liabilities as well as details of disputes and litigation that a business may be involved in.
Once full details of the acquisition have been scrutinised, the buyer’s solicitor will usually be the one to draw up a share purchase agreement, taking into account the disclosed information.
Key clauses in a share purchase agreement
The agreement will include provisions to protect the buyer as far as possible from liabilities that are already in existence.
The seller will be required to give warranties confirming that the information supplied is correct, to include details of accounts, tax liabilities and any impending or ongoing legal action.
The buyer will also ask the seller to agree a number of restrictive covenants, for example undertaking not to set up a rival business nearby or to attempt to lure away customers or clients.
The agreement will also contain indemnities given by the seller in respect of any future losses or liabilities that may arise because of action taking before the sale. Examples of this include ongoing legal disputes, customer or client claims or unpaid tax bills.
Putting a robust share purchase agreement in place
It is important that an agreement for the purchase of shares is carefully drafted both to protect the parties involved and to ensure that the clauses are enforceable. For example, if a restrictive covenant is too widely drafted, it could be found to be invalid.
An experienced company and commercial solicitor will be able to ensure that a buyer or seller is protected as far as possible and that liability is limited in respect of both time period and financial ceiling.
At Hutchinson Thomas we understand the importance of putting the right share purchase agreement in place, tailored to suit the requirements of the business in question and to protect the interests of the seller or buyer of the shares. We will work with you to ensure that liabilities are identified and that your position is protected and risk limited as far as possible. Where necessary, we will negotiate robustly on your behalf to safeguard your position.
Hutchinson Thomas is the first law firm in Wales to be awarded the Law Society Mark of Excellence. The firm and many of our lawyers are recognised year on year in the Legal 500 publication as leading individuals in their field.
If you are selling or buying shares in a business and you would like to speak to one of our expert commercial solicitors, call us on the following numbers or fill in our contact form.