A share purchase agreement can have any terms that the parties may mutually agree upon. However, there are certain important elements that must be covered in any share purchase agreement. These terms are mentioned below:
1. Personal information of the parties to the agreement
Parties to an agreement should be defined precisely, including their full name, address, and details of their relevant identity document. In case one of the parties to the agreement is a corporate entity, their trade or commercial license should also be included in the personal information.
2. Starting and completion date of the agreement
A share purchase agreement should have a defined starting date. This is also known as the commencement date of the agreement. The commencement date is considered to be important as it defines the date on which the legal relationship of the seller and the purchaser starts. Similarly, a share purchase agreement should also have a defined completion date. The completion date is intended to keep a limitation on the period of time by which, the transaction of the agreement should stand completed.
3. Conditions precedent
Another one of the most important clauses in a share purchase agreement would be the conditions precedent clause. This is inclusive of all the conditions that need to be satisfied before parties can proceed with the transfer of shares. There may be instances where the parties are required to seek permission from relevant government authorities/department before they can proceed with the transaction. In certain cases where debt capital such as bank loans are involved, the parties may be required to seek prior approval from the concerned bank as well. This is why it is important to include a well-constructed conditions precedent clause.
4. Consideration
The consideration clause defines the total amount agreed to be paid for sale of the shares. It includes the total amount, the mode of payment (whether through wire transfer, manager’s cheque, or cash), instalments or tranche scheme, if any, and any other provisions that is mutually agreed upon by both the parties.
5. Details about shares
Since the entire agreement is constructed on the basis of the shares that need to be sold or purchased, it is vital to define the details of the shares. The details regarding the shares would include the total number of shares, the value per share, the type of shares, and the name of the company whose shares form the subject matter of the agreement.
6. Rights associated with the shares
Along with the legal ownership, the purchaser inherits certain rights associated with the shares. These rights should also be aptly defined under the share purchase agreement. It is also important to define the period of time from which the rights stand transferred from the seller to the purchaser.
7. Warranties
Warranties form a key element in a share purchase agreement. Since a share purchase agreement is essentially a sale/purchase agreement, warranties of both the parties to the agreement should be defined. This clause would allow each party to be given certain assurances, as warranties, before they enter into the agreement. Furthermore, since both the parties require well defined warranties in order to safeguard their respective interests, this clause is of paramount importance in any share purchase agreements. Considering the importance of this clause, it needs to be constructed in a precise and comprehensive manner to avoid doling out any unwanted or overburdening assurances.
8. Applicable law and jurisdiction
Lastly, a share purchase agreement should specify the governing law, which becomes the applicable law to be used for interpretation of all the provisions of the agreement.
The provision of jurisdiction defines the courts or arbitration centres which would decide over any disputes which may arise in the future with respect to the agreement.
9. Additional terms
A share purchase agreement incorporates other additional terms as may be mutually agreed between the parties such as consequences of non-completion, termination, and indemnities. These additional terms define the relationship of the parties in more details.
The objective of having detailed provisions is to mitigate the risk associated under the share purchase agreement. More streamlined provisions allow the parties to have confidence that their respective rights are duly protected.
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