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Share Sale Agreements

June 2010

This month sees the launch of a completely new sub-folder of documents, Share Sale Agreements containing everything you need in order to complete a transaction involving the sale of company via a share sale.

All the steps are covered from the initial discussions where the seller may wish to protect its trade secrets and know how with a Confidentiality Agreement to completion of the proposed sale. Equally, the potential buyer may wish to avoid spending considerable amounts on instructing advisors and investigating the target company only to find that the shareholder(s) have entered into a share sale agreement with a third party and so may insist on an Exclusivity Agreement.

The Heads of Terms (Heads of Agreement) are used during early negotiations when the parties have agreed the principal terms of the agreement and wish to put them in writing to identify any pitfalls and avoid future misunderstandings. This will help to avoid wasting time and costs.

The Legal Due Diligence Enquiries are usually sent by the Buyer’s solicitors to the Seller’s solicitors to assist in investigating the company to be purchased. The Buyer’s solicitors will then report back to the Buyer before a legally binding agreement is signed. This is especially important when a Buyer buys the shares of a company, as they will acquire all the liabilities of the company together with the assets. By contrast, in a sale of assets and undertakings, the Buyer can “cherry pick” the assets and liabilities it wishes to acquire.

The Share Sale Agreement Comparison matrix explains the main features of each of the Share Sale Agreements. These Share Sale Agreements have a number of different titles. The difference between each agreement reflects the vendor entity and the inclusion or exclusion of real property or subsidiaries.

The Disclosure Letter should be issued by the Seller(s) shortly before Completion of the sale and purchase of the shares and will be closely linked to the warranties given in the Share Sale Agreement.

The Completion Checklist assists the parties at the completion meeting by setting out which documents are required and who is responsible for producing each one.

The Auditor's Resignation Letter can be used if the Auditor is required to resign at the completion meeting.

The Board Minutes of the Buyer and Seller are used to record the meetings of the boards of directors of the Buyer and Seller respectively approving the transaction.

The Indemnity - Lost Share Certificate can be used where the Seller(s) are unable to produce their share certificate(s) at the completion meeting because they are lost or were never issued.

The two Powers of Attorney are used to give the Buyer all the rights in the shares during the period between completion and registration of the Buyer as the holder of the shares in the books of the company (which may be several days due to the need for the stock transfer form(s) to be stamped).

One of the two Undertakings should be used if completion has taken place outside normal banking hours (making the same day transfer of the completion monies impossible). The appropriate one should be chosen depending on whether the monies have been transferred to the Buyer’s solicitor (Undertaking Letter (Acting for Buyer)) or to the Seller’s solicitor (Undertaking Letter (Acting for Seller)) in advance of the completion meeting.

Next month we will release a sub-folder containing all documents required for the sale of a business via the sale of its assets and undertaking. Some of the documents released this month can also be used for such sales.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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