Share Sale and Purchase Agreement (Sale by Individual(s)) - With Subsidiaries and Real Property

This Share Sale and Purchase Agreement (Sale by Individual(s)) - With Subsidiaries and 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 Individual(s)) - With Subsidiaries and Real Property do?

This agreement can be used where an individual or group of individuals are selling a company that has subsidiaries (so the target is part of 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 owns real property (whether freehold or leasehold). The agreement records the sale terms and allocates risk between buyer and sellers.

At its most basic level, shares may be transferred by the sellers 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 sellers may also wish to have a formal agreement to clarify their liability and ensure clear payment terms.

What does Share Sale and Purchase Agreement (Sale by Individual(s)) - With Subsidiaries and Real Property cover?

In this agreement, the parties are the individual sellers and the buyer. The buyer is assumed to be a company, although the agreement can be amended to make the buyer an individual or individuals.

It includes provisions on:

• The purchase price and payment mechanics (including allocation between sellers by reference to their shareholdings)
• Accounts and (where relevant) management accounts
• Warranties, disclosure, and limits on the sellers’ liability
• Indemnities for identified risks and due diligence findings
• Confidentiality and restrictions on competition and solicitation
• Completion arrangements and deliverables
• Group structure and property information relevant to the transaction

When should you use Share Sale and Purchase Agreement (Sale by Individual(s)) - With Subsidiaries and Real Property?

Use this agreement where:

• The seller is an individual or group of individuals
• The target company has subsidiaries
• The target company owns real property (freehold or leasehold)
• 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 1 – sellers’ liability: the sellers are liable for breaches of the agreement jointly and severally. This means the buyer can make a claim against one, some, or all of the sellers. The sellers should have a clear agreement between themselves as to their respective liabilities, particularly if their contributions were unequal.
• Clause 3 (Consideration) and Schedule 8 (payment allocation and method): the purchase price is payable to each seller pro rata according to their shareholdings. Select whether payment is to be made by banker’s draft (in favour of the sellers or the sellers’ 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 sellers 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 sellers 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 sellers 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 sellers’ release from a specified guarantee and agrees to indemnify the sellers against liability arising after completion. This may be useful where the transaction completes in a short period and the sellers have given guarantees (for example, to bankers or a landlord).
• Clause 10 (indemnities): provides a list of indemnities given by the sellers to the buyer, covering specific risks and matters identified through due diligence (see clause 10.5). The drafting can be adapted so the company and/or each subsidiary has the benefit of the indemnities where required.
• 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 the names, addresses, shares held, and the proportion of the purchase price due to each of the sellers.
• Schedule 2: complete with details of the company and the subsidiaries.
• Schedule 3: include details of all properties held by the company.
• Schedule 4 (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 5 (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 6: can be used to insert provisions regarding pension arrangements.
• Schedule 7 (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.

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