The sale of a commercial business has many components that need to be considered. Irrespective of the value of the business, a purchase agreement will usually be present. Although this is not a legal requirement, as the sale of a business can be quite complex, the need for certainty will always require the use of one. The two most common types of purchase agreements are Asset Purchase Agreements and Share Purchase Agreements.
This article will briefly discuss Share Purchase Agreements (‘SPA’) and their implications in purchasing a business.
A buyer may decide to acquire a company through a SPA which is a legally binding contract between the seller and buyer. It usually occurs when part or all of the share capital of the company is being sold to another (the controlling interest of the company which is more than 50% of the number of shares). This means that the buyer acquires all the interests, liabilities and benefits of the company through this. Due to these implications, it is important that the solicitors acting for the buyer conduct their due diligence properly and cover the following points:
- The names of the seller and the buyer.
- What types of shares are being purchased.
- What consideration is being provided for the shares.
- The purchase price.
- The amount of shares being sold.
- The completion date of when the purchase will take place.
- The terms and conditions of the purchase.
However, it must be stressed that the company will still own its assets and it will continue to run the business. Consequently, a SPA is perfect for someone that wants to acquire a company through becoming a majority shareholder and a director. This means that there is a sense of continuity and less disruption e.g. no consent is required to assign (transfer) third party contracts to another individual/entity.
A stock transfer form is used to transfer the shares from the seller to the buyer upon completion. Furthermore, both the seller and the buyer would have likely received tax advice from their respective accounts regarding any available reliefs e.g. entrepreneurs relief.
Please contact our commercial team if you would like to discuss any initial considerations regarding how best to acquire or sell your company.