This Management Buy-In Share Sale Agreement is identical in content to
"Company Share Sale Agreement - with Subsidiaries and Real Property
(CO.SHARE.01)" and is one of a number of share sale agreements which deal
with the sale of a company through the sale of shares:
- Company Share Purchase Agreement - with Subsidiaries, no Real Property;
- Company Shares Sale Agreement - with Real Property, no Subsidiaries;
- Company Share Sale and Purchase Agreement - no Subsidiaries, no Real
- Share Sale Agreement - with Subsidiaries and Real Property;
- Share Purchase Agreement - with Subsidiaries, no Real Property;
- Shares Sale Agreement - with Real Property, no Subsidiaries; and
- Shares Purchase Agreement - no Subsidiaries, no Real Property.
Any of the other Share Sale agreements can be used for a management buy-in
and the version which applies to your transaction should be chosen. If you
are not sure which share sale agreement is right for you, please consult
the Share Sale Agreement Comparison Matrix.
A management buy-in is where a new management team acquires a company
(which may be supported by acquisition finance from a lender and/or equity
finance from a venture capitalist). Since the new team have no pre-existing
knowledge of the company, they will want full warranties. Contrast this
situation with a management buy-out, where the acquiring management team
know the company very well. This Management Buy-In Share Sale Agreement can
be used where a Company is selling one of its subsidiaries to the
management team and this subsidiary also has subsidiaries (i.e. it is part
of a group). The sale is by way of a sale of shares. The company being sold
is the owner of real property (whether freehold or leasehold). At its most
basic level, it is possible to transfer the ownership of shares by the
seller executing a stock transfer form and delivery to the buyer together
with the share certificate (or an indemnity in the certificate has been
lost). The buyer will usually need to have the stock transfer form stamped
and pay the stamp duty on it. The buyer will then lodge the stock transfer
form with the company and will become a member of the company once the
board has approved the transfer and the name of the buyer has been entered
in the register of members. The buyer will be entitled to a share
certificate within two months. Although this process is sufficient to
transfer ownership of the shares to the buyer, because the buyer will be
acquiring all the assets and liabilities of the company when acquiring the
shares, the buyer will usually require a formal share sale agreement. The
seller may also wish to have a formal agreement or in order to clarify its
liability or ensure clear payment terms.
Optional phrases / clauses are enclosed in square brackets. These should be
read carefully and selected so as to be compatible with one another. Unused
options should be removed from the document.
This agreement is in open format. The form fields should be completed the
wording should be adjusted to suit your purposes.
In this agreement, the Parties are the Seller and the Buyer, which are both
companies. However, the Buyer may want a parent company guarantee, and so
the parent company will need to be added as a party.
In Clause 1 (Interpretation), please choose the appropriate wording for the
definition of the Accounts. If the group of companies being sold has
consolidated accounts, please choose the wording at sub paragraph (b). If
Management Accounts are being provided by the Company (for example, if a
long period of time has passed since the Accounts Date) then the definition
of Management Accounts should be retained.
Clause 3 (Consideration) refers to Schedule 7 where there is an option to
choose between payment for the transaction being made by banker’s draft in
favour of the Seller or the Seller’s Solicitors, or by telegraphic transfer
to a designated account. Since many completions tend to take place at
uncivilised hours (and thus outside normal banking hours!) an undertaking
should be signed. Please see the related documents for two examples of
undertakings that may be used.
Clause 6.2.1 specifies that the maximum liability of the seller under this
agreement for all claims aggregated together is the purchase price.
However, there is an exception for breaches of the warranties in paragraph
1 of schedule 4 (which relates to ownership of the shares and authority to
sell) and of breaches of the Tax Covenant. If the seller is not in a
position to sell, then they should have no limit to their liability. In a
similar way, the Tax Covenant is a pound for pound indemnity for any tax
liability which the Company may incur after completion and so it should not
However, in Clause 6.2.2 the seller is given some protection from claims
being brought for trivial breaches and so it is possible to specify a
minimum value of each claim (at clause 188.8.131.52). If the value falls below
this amount, then the claim is ignored (this is the ‘X’ amount in the form
field). A figure should be inserted in the form field such as £1,000 (the
amount will vary depending on the total value of the transaction).
Furthermore, at clause 184.108.40.206, it states that no claims may be brought
unless all the claims of the ‘X’ amount equal or exceed a threshold (the
‘Y’ amount) such as £10,000. So, in our example, if the buyer has 9
individual claims of £1,000, he will not be able to make a claim because
the threshold of £10,000 has not been reached. However, if he has 10 claims
of £1,000 then he will be able to make a claim. Moreover, the buyer will be
able to claim for the whole amount, not just the excess over the £10,000
Clause 7 and Clause 8 protect the buyer by placing restrictions on the use
of confidential information and preventing the seller from setting up a
competing business or soliciting the Company’s customers.
Clause 9 is an optional clause where the buyer gives an undertaking to
attempt to obtain the release of the seller from a specified guarantee and
agrees to indemnify the seller against any liability arising after
completion. This will often be useful to the transaction is completed in a
short space of time and the seller has given guarantees to, for example,
its bankers or its landlord.
Clause 10 provides a list of indemnities given by the seller to the buyer.
The wording in square brackets can be used so as to give the Company and/or
each of the subsidiaries the benefit of the indemnities if required. These
cover specific risks and further matters that arise or due diligence may be
included at clause 10.5.
Clause 11 deals with publicity of the sale and purchase. If the parties
wish to make a press announcement, then the wording in square brackets in
clause 11.1 should be retained.
Clause 13 makes it clear that no third party can enforce any of the
provisions of the agreement. Clause 13.1 should be amended if, for example,
the Subsidiaries have been given the benefit of the indemnities under
clause 10. Any other clauses which give rights to third parties which are
intended to be enforceable should be included in this clause.
Clauses 14-23 are “boiler plate” clauses that do not have much impact on
the transaction but which lawyers include for good measure. These should
not be amended unless there are very good reasons for doing so.
Schedule 1 must be completed with details of the Company and the
Schedule 2 must include details of all properties held by the Company.
Schedule 3 includes the Tax Warranties and the Tax Covenant. Whilst this
may seem like overkill, having tax warranties is useful for extracting as
much information from the seller so that any issues can be exposed in good
time and may be subject to specific indemnities. The tax covenant
represents a pound for pound indemnity in favour of the buyer for any tax
liability of the Company exceeding the tax provision in the most recent
audited accounts and for any tax liability arising between the accounts
date and completion, but only if such liabilities arise outside the
ordinary course of business of the Company. Because the tax covenant is an
indemnity, it is much stronger than a warranty. Unlike the warranties, the
losses that can be claimed under an indemnity do not have to be foreseeable
and the party who has suffered loss does not have to mitigate that loss.
A detailed set of warranties are included at Schedule 4. These warranties
are also given by each of the subsidiaries of the Company. The amount may
appear daunting at first but they are a fairly standard set of warranties
designed both for the protection of the seller and the buyer. The seller
can easily make disclosures against the warranties and the buyer can learn
as much as possible about the company being bought. Paragraphs 10.4 and
10.5 are optional. 10.4 should be included in the agreement if the accounts
date is not the same as the completion date. 10.5 should be used if
Management Accounts are being produced. Naturally, every transaction
differs from another and discretion should be used by the advisors to the
seller and buyer as to which warranties are most appropriate.
Schedule 5 can be used to insert any provisions regarding pension
Schedule 6 contains arrangements for completion and should be tailored to
the transaction. It should be used in conjunction with the “Completion
Checklist” which can be found in the related documents below.
Share Sale Agreements are complicated documents. If in doubt you should
seek professional advice prior to entering into one.
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