Drafting Share Purchase Agreements- Dos and Donts

Drafts & Formats
Business contract signing

5 things you must be aware while executing the share purchase agreement 

What is a Share Purchase Agreement? 

A share purchase agreement is a contract between a buyer (Investor) and a seller (Existing Shareholders) in which the buyer agrees to purchase shares of the seller’s company. The share purchase agreement outlines the  

  • terms and conditions of the sale,  
  • the price of the shares, 
  • the date of the sale.  
  • shareholders’ rights,  
  • dividends,  
  • voting rights,  
  • board of directors,  
  • management,  
  • compensation,  
  • benefits, and  
  • restrictions on the sale of the shares. 

Things you should be aware of when you execute Share Purchase Agreement 

  1. Do your due diligence

You should know everything there is to know about the company you’re buying shares in – from their history and how they’ve performed in the past, to their current financial situation and what their plans are for the future. This will help you negotiate a better price for your shares, and avoid any potential surprises down the line. The first step in conducting due diligence on a company is to research its history. This includes looking at both its financial history and any major news events that have occurred since it was founded. This will give you a good idea of how the company has performed in the past and what kind of challenges it has faced. Next, you need to examine the company’s current financial situation. This means looking at their balance sheet, income statement, and cash flow statement. This will give you an idea of their overall financial health and whether or not they are in a position to pay dividends. Finally, you need to look at the company’s plans for the future. This includes examining their business model and understanding their growth strategy. This will help you determine if the company is likely to be successful in the future and if its share price is likely to increase. 

  1. Get professional help

While it’s not mandatory, it’s generally a good idea to get some professional help when drafting a share purchase agreement. A lawyer with experience in this area will be able to spot any potential problems and help you negotiate favorable terms. Assuming you’re looking to buy shares in a company, there are a few key items that should be included in the share purchase agreement. The first is the price per share that you’re willing to pay. This should be clearly stated in the agreement so that there’s no confusion later on. The second item is the number of shares you’re looking to purchase. This again should be stated explicitly in the agreement to avoid any misunderstanding down the road. Finally, you’ll also want to include a clause specifying what happens if either party breaches the agreement. This could involve financial penalties or other legal remedies. Including this clause will help protect your interests in case something goes wrong with the deal. 

  1. Be clear on what you’re buying

Make sure that the share purchase agreement is very clear on what exactly you’re buying – whether it’s all of the shares in the company or just a percentage, and whether there are any restrictions or conditions attached to those shares. If you’re buying shares in a company, it’s important to make sure that the share purchase agreement is clear on what exactly you’re buying. This includes whether you’re buying all of the shares in the company or just a percentage and whether there are any restrictions or conditions attached to those shares. When drafting a shareholder’s agreement, it is essential to be clear about what each party is bringing to the table and what their role will be going forward. For example, if one shareholder is investing money into the business while another is providing expertise, this should be stipulated in the agreement. This will help avoid any misunderstandings down the road. It is also important to set out clearly how decisions will be made within the company. Will there be unanimous consent? Or can decisions be made by a majority vote? What happens if there is a deadlock? These are all important questions that need to be addressed in a shareholder’s agreement. 

  1. Consider taxation implications

Before you sign anything, make sure you understand how the sale of shares will be taxed – both for yourself and for the company. This could have a big impact on the overall price of the deal, so it’s important to get advice from a tax specialist if necessary. If you’re selling shares in a company, it’s important to understand the tax implications – both for yourself and for the company. This could have a big impact on the overall price of the deal, so it’s important to get advice from a tax specialist if necessary. When you sell shares, you may be liable for capital gains tax. This is calculated based on the difference between the sale price of the shares and their original purchase price. If you’ve owned the shares for less than 12 months, you’ll pay short-term capital gains tax at your marginal income tax rate. If you’ve owned them for longer than 12 months, you’ll pay long-term capital gains tax at a lower rate of 15%. The company may also be liable for taxes on any profit made from the sale of shares. Depending on how much profit is made, this could be taxed at either the corporate income tax rate (21%) or the higher small business corporate income tax rate (27.5%). 

  1. Negotiate favorable terms

Finally, don’t be afraid to negotiate! If there are terms in the share purchase agreement that you’re not happy with, try to amend them before signing on the dotted line. With some careful negotiation, you can ensure that the deal is fair for both parties involved. If you’re not happy with the terms of the share purchase agreement, try to negotiate with the other party before signing. It’s important to make sure that both parties feel like the deal is fair. With some careful negotiation, you can ensure that everyone involved is satisfied with the final agreement. Don’t be afraid to ask for what you want in a negotiation. The worst thing that can happen is that the other party says no. However, if you don’t ask, you’ll never know what could have been. If there are specific terms or conditions that you’re not happy with, be sure to bring them up during negotiations. With some back-and-forth, it’s possible to reach an agreement that works well for both sides. Remember, a little bit of negotiating can go a long way. If you’re not satisfied with the proposed share purchase agreement, try talking to the other party and see if there’s room for compromise. By working together, it’s possible to come to an arrangement that makes everyone happy. So don’t be afraid to speak up and negotiate! 

Legal Disclaimer: The information contained in this blog post is for general information and educational purposes only. Nothing contained in this blog post should be construed as legal advice from The Aran Law Firm or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.

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