Share Purchase Agreement Seller Protection

July 12, 2023 Uncategorized

A share purchase agreement, also known as an SPA, is a legal contract that outlines the terms and conditions of the sale and purchase of shares in a company. While it is a crucial document for any share purchase transaction, it is especially important for sellers to ensure that they have adequate protection under the agreement. In this article, we will discuss the various seller protections that can be included in a share purchase agreement.

First and foremost, a share purchase agreement should contain clear language regarding the purchase price and payment terms. This includes specifying the amount, currency, and method of payment, as well as any adjustments to the purchase price based on the company`s financial performance. Sellers should also consider requesting a portion of the purchase price to be held in escrow, which can provide additional security in case of any disputes or unforeseen liabilities.

Another important aspect of seller protection is the inclusion of representations and warranties from the buyer regarding the company`s financial and legal standing. These statements ensure that the buyer is aware of any potential issues that could affect the value of the shares. For example, the buyer should represent that they have conducted thorough due diligence on the company, that there are no pending lawsuits or regulatory investigations, and that all necessary licenses and permits are in place.

In addition to representations and warranties, sellers can also negotiate indemnification clauses in the share purchase agreement. These clauses establish the responsibility for any losses, damages, or liabilities that arise after the transaction has closed. For example, if a legal claim is brought against the company for an issue that occurred prior to the sale, the buyer would be responsible for covering any costs associated with the lawsuit. However, if the claim is related to a breach of a representation or warranty made by the buyer in the share purchase agreement, the seller may be entitled to indemnification.

Finally, sellers should consider including non-compete and non-solicitation clauses in the share purchase agreement. These clauses restrict the buyer from engaging in activities that could harm the company, such as starting a competing business or poaching key employees. By limiting the buyer`s ability to compete with the company, sellers can protect the value of their shares and ensure a smooth transition of ownership.

In conclusion, a well-drafted share purchase agreement is essential for ensuring that sellers are adequately protected during a share purchase transaction. By including clear language regarding the purchase price and payment terms, representations and warranties, indemnification clauses, and non-compete/non-solicitation provisions, sellers can minimize their risk and maximize the value of their investment in the company. As always, it is important to seek the advice of legal counsel experienced in share purchase agreements to ensure that your interests are fully protected.