A Share Purchase Agreement is a document used by shareholders to transfer their company share ownership to a buyer. A share denotes ownership in the company. Shares can be purchased or sold by both individuals and corporations, so either may require the use of a Share Purchase Agreement.
Typically a letter of intent is drafted to explain the terms of the sale. The terms outlined in the letter of intent will form the bulk of the purchase and warranties and representations sections of the purchase agreement.
A good Share Purchase Agreement will cover all details including;
- the name of the company
- the value of shares,
- the name of the purchaser,
- warranties and representations made by the seller and purchaser,
- possible employee issues such as benefits and bonuses,
- the number of shares being sold,
- the transaction place and time, and
- indemnification agreement over costs that may be unforeseen.
Share Purchase agreement vs Asset Purchase agreement:
An Asset Purchase Agreement is a legal document for the sale of a company’s assets or liabilities like equipment, real estate, goodwill or IP. It can be both a tangible as well as an intangible resource. Asset purchase agreements never include the transfer or sale of shares. For more information on asset purchase agreements, please refer to our earlier article on the subject here.
Types of Shares:
The primary classification of share is a voting share and non-voting share. Other details to note in the classification of a share include dividends issued, share value calculation terms and if the share is callable. Depending on the characteristics of the specific shares, they may be classified as Class A, B or C by the company.
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