Share sale – the main types of consideration

From the seller’s perspective, procuring immediate cash payment for the agreed value of the shares will normally be the most favourable outcome. In a share sale transaction, this method of consideration indubitably circumvents the uncertainties and possible credit risk pertaining to other payment structures. Moreover, providing the seller with a fixed cash sum at completion can also be easily documented in the share purchase agreement. The consideration clause could often be restricted to the following:

 The agreed amount that the purchaser must pay (purchase price).

  • The purchase price must be paid in full on completion.
  • The manner of payment e.g. electronic transfer or banker’s draft.
  • In the event that there are multiple sellers, how the consideration will be allocated between them.

 Of course the purchaser must confirm that it has the requisite funds to meet its payment obligations. It is unlikely that UK sellers will agree to proceed to exchange if completion will be dependent on the purchaser acquiring finance from a third party.

 Conversely, there are transactions where corporate buyers allot and issue shares to the seller in order to satisfy the consideration requirements (otherwise known as non-cash consideration). One should note however, that this approach is usually taken when the purchaser’s shares are publicly traded e.g. on the Main Market of the London Stock Exchange or on AIM.

 An alternative (and fairly common) form of non-cash consideration entails the purchaser issuing loan notes to the seller. A loan note can be construed as a type of financial instrument that corroborates the existence of a debt. The note will comprise a promise by the issuer to repay any outstanding amount to the noteholder. Hence, in a corporate acquisition a loan note would in essence, enable the purchaser to borrow part of the purchase price from the seller.





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