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 a number of share sale agreements in this subfolder which deal with the sale of a company through the sale of shares. The first four agreements in the subfolder deal with a sale by a corporate entity; i.e where the seller is a company. The second four agreements relate to a sale by specific individual sellers.
If you are not sure which share sale agreement is right for you, please consult the Share Sale Agreement Comparison Matrix.
This Company Share Purchase Agreement can be used where a Company is selling one of its subsidiaries and this subsidiary also has subsidiaries (i.e. it is part of a group). It is 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). 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 if 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 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 Company Share Purchase Agreement is in open format. The form fields should be completed and 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 6 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).
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 220.127.116.11). 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 18.104.22.168, 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 threshold.
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 Subsidiaries.
Schedule 2 includes space for the Tax Warranties and the Tax Covenant. 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. Tax is an area of frequent change and its interpretation can have a significant effect on any transaction. This schedule has been left deliberately blank for customers’ tax advisors to include the necessary tax warranties and tax covenants relevant to the transaction in question. We would strongly recommend seeking independent tax advice in relation to this.
A detailed set of warranties are included at Schedule 3. 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 4 can be used to insert any provisions regarding pension arrangements.
Schedule 5 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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