Share Sale and Purchase Agreement (Sale by a Company) - With Subsidiaries No Real Property

This Share Sale and Purchase Agreement (Sale by a Company) - With Subsidiaries, No Real Property is one of the share sale agreements in this collection dealing with the sale of a company through the sale of shares.

The first four agreements in this collection deal with a sale by a corporate entity (where the seller is a company). The second four agreements relate to a sale by individual sellers.

If you are not sure which share sale agreement is right for you, consult the Share Sale Agreement Comparison Matrix.

What does Share Sale and Purchase Agreement (Sale by a Company) - With Subsidiaries, No Real Property do?

This agreement can be used where a company is selling one of its subsidiaries and that subsidiary also has subsidiaries (so the target sits within a group). It is also suitable for a management buy-in.

The sale is by way of a sale of shares. The company being sold does not own real property (whether freehold or leasehold). The agreement records the sale terms and allocates risk between buyer and seller.

At its most basic level, shares may be transferred by the seller executing a stock transfer form and delivering it to the buyer together with the share certificate (or an indemnity if the certificate has been lost). The buyer will usually need to have the stock transfer form stamped and pay stamp duty on it. The buyer will then lodge the stock transfer form with the company and will become a member once the board has approved the transfer and the buyer’s name has been entered in the register of members. The buyer will be entitled to a share certificate within two months.

Although that process is sufficient to transfer ownership of the shares, the buyer will usually require a formal share sale agreement because the buyer acquires the company’s assets and liabilities when acquiring the shares. The seller may also wish to have a formal agreement to clarify its liability and ensure clear payment terms.

What does Share Sale and Purchase Agreement (Sale by a Company) - With Subsidiaries, No Real Property cover?

In this agreement, the parties are the seller and the buyer, both of which are companies. The buyer may also require a parent company guarantee, in which case the relevant parent company would need to be added as a party.

It includes provisions on:

• The purchase price and payment mechanics
• Accounts and (where relevant) management accounts
• Warranties, disclosure, and limits on the seller’s liability
• Indemnities for identified risks and due diligence findings
• Confidentiality and restrictions on competition and solicitation
• Completion arrangements and deliverables
• Group structure information (company and subsidiaries)

When should you use Share Sale and Purchase Agreement (Sale by a Company) - With Subsidiaries, No Real Property?

Use this agreement where:

• The seller is a company (a corporate seller)
• The target is part of a group (it has subsidiaries)
• The target company does not own real property
• You want a formal share sale agreement to document the deal and allocate risk

Clause and schedule notes

The notes below follow the clause and schedule numbering in the agreement and are intended to help you complete it appropriately.

• Clause 1 (Interpretation) – Accounts definitions: choose the appropriate definition of the Accounts. If the group has consolidated accounts, use the wording that applies to consolidated accounts. If management accounts are being provided (for example, where a long period has passed since the accounts date), retain the definition of Management Accounts.
• Clause 3 (Consideration) and Schedule 6 (payment method): select whether payment is to be made by banker’s draft (in favour of the seller or the seller’s solicitors) or by telegraphic transfer to a designated account. Because completions often take place outside normal banking hours, an undertaking should be signed. This collection includes example undertakings.
• Clause 6.2.1 (liability cap): provides that the maximum liability of the seller for all claims in aggregate is the purchase price, with an exception for breaches of the warranties in paragraph 1 of Schedule 4 (ownership of the shares and authority to sell).
• Clause 6.2.2 (de minimis and basket): allows the seller protection against trivial claims by setting a minimum value for each claim (the “X” amount). Claims below that amount are ignored. A further threshold (the “Y” amount) can then be set so that no claims may be brought unless qualifying claims in aggregate reach or exceed that threshold. For example, if X is £1,000 and Y is £10,000, nine claims of £1,000 would not reach the threshold, but ten claims of £1,000 would. If the threshold is met, the claim is for the whole amount, not just the excess over the threshold.
• Clauses 7 and 8 (confidentiality and restrictive covenants): restrict the use of confidential information and prevent the seller from setting up a competing business or soliciting the company’s customers.
• Clause 9 (release of guarantees and indemnity): an optional clause under which the buyer undertakes to attempt to obtain the seller’s release from a specified guarantee and agrees to indemnify the seller against liability arising after completion. This may be useful where the transaction completes in a short period and the seller has given guarantees (for example, to bankers or a landlord).
• Clause 10 (indemnities): provides a list of indemnities given by the seller to the buyer, covering specific risks and matters identified through due diligence (see clause 10.5).
• Clause 11 (publicity): deals with publicity relating to the sale and purchase. If the parties wish to make a press announcement, the relevant wording should be retained.
• Clause 13 (third party rights): states that no third party can enforce the agreement. This clause may need to be amended if, for example, subsidiaries are given the benefit of indemnities under clause 10 and those rights are intended to be enforceable.
• Clauses 14–23 (boilerplate): contain standard provisions commonly included in commercial agreements. They should not be amended unless there are strong reasons for doing so.
• Schedule 1: complete with details of the company and the subsidiaries.
• Schedule 2 (tax warranties and tax covenant): provides space for tax warranties and a tax covenant. This schedule is left deliberately blank for customers’ tax advisers to include provisions relevant to the transaction. Tax is an area of frequent change and interpretation can materially affect the deal structure. Independent tax advice is strongly recommended.
• Schedule 3 (warranties): includes a detailed set of warranties, also given by each subsidiary. Some paragraphs are only relevant in particular circumstances, including where the accounts date is not the same as completion and where management accounts are being produced. Advisers should exercise discretion on which warranties are most appropriate for the transaction.
• Schedule 4: can be used to insert provisions regarding pension arrangements.
• Schedule 5 (completion arrangements): sets out completion mechanics and should be tailored to the transaction. It should be used in conjunction with the Completion Checklist available in the related documents for this collection.

Share sale agreements are complex documents. If in doubt, you should seek professional advice before entering into one.

Share Sale and Purchase Agreement (Sale by a Company) - With Subsidiaries No Real Property is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.