SHARE PURCHASE AGREEMENT

by Ayushi Mishra

SHARE PURCHASE AGREEMENT

A percentage purchase settlement is a legally binding document that governs the sale and transfer of stocks in a corporation. Unlike an asset purchase agreement, which transfers unique property, an SPA transfers possession and control of a business.

Normally, the consumer works with a solicitor to draft the SPA, as they bear the extra risk in the transaction.
 When a purchaser purchases stocks in a business, their purpose is to gain partial or total control of the commercial enterprise. In that sense, an SPA isn’t the same as an agreement to buy assets which include gadgets, inventory or belongings. An asset buy no longer gives the customers any shape of manipulate over the business.
 The purpose of an SPA is to set out the scope and terms of the settlement, collectively with any necessary supporting documents, to make certain that each party recognises their rights and liabilities on account of a switch of shares.

BENEFITS OF A SHARE PURCHASE AGREEMENT IN INDIA

  1. Confidentiality and safety
     It consists of confidentiality clauses that limit the celebration from disclosing any sensitive data approximately a transaction or an enterprise to an unauthorised person. This could help ensure the corporation’s reputation is protected and prevent any sensitive information from leaking and falling into the hands of an able risk.
  2. Clarity of Transaction
     The SPA mentions the specs of the percentage sale and the wide variety of shares that can be transferred, the shopping rate, and the terms of charge. Doing so leaves no room for any false impression and ensures an obvious and smooth transaction between both parties involved.
  3. Tax considerations
     it’s far established to reduce tax implications for each the purchaser and the vendor. It involves taking gain of applicable tax deductions or the use of tax-efficient paying strategies.
  4. Allocation of Rights and Liabilities
     SPA sincerely outlines the rights and liabilities of both the customer and the vendor. It allows for fending off disputes and misunderstandings among the parties and guarantees they know their roles and duties.
  5. Complete Warranties
     It includes a set of warranties that the seller offers to a customer. Those shield the hobby of a purchaser by way of ensuring the economic information is correct, the seller’s legal authority can transfer the shares and guarantees the absence of undisclosed liabilities.
  6. Dispute Resolution Mechanisms
     SPA commonly mentions the procedures in reality for resolving the disputes among the parties involved. It consists of arbitration, litigation, and mediation. A prearranged system to solve disputes facilitates avoiding or preventing time-consuming and costly felony battles.
  7. Facilitating Due Diligence
     It offers a based plan for carrying out due diligence at the organisation and the stocks of the business enterprise. It enables the purchaser to make an knowledgeable decision about the purchase and analyze any capacity threats or dangers that are associated with the funding.
  8. Compliance with regulations
     SPAs are written to abide by the applicable laws and policies that control the percentage income in India. It ensures that the transaction is legally enforceable and that both parties concerned within the agreement should adhere to the legal responsibilities.
  9. Safety towards future Claims
     It consists of provisions that shield a purchaser from any destiny liabilities or claims that arise from the seller’s omissions or actions earlier than the sale.
  10. Making sure clean transfer of possession
     SPA outlines the method for shifting the ownership of the shares from a vendor to a purchaser. It consists of registration transfers, handling sharecertificatese, and different necessary changes in a corporation’s information.

SHARE PURCHASE AGREEMENT – CHECKLIST

  1. Parties’ details

The SPA will identify the buyer(s) and the vendor(s) so it is clear precisely who the outgoing and incoming parties are. Docue’s proportion purchase settlement template allows for company or person shoppers and sellers, and additionally enables you to include more than one buyer and dealer if required.

  1. Target company information

It’s critical to make sure it is clear inside the SPA which enterprise’s stocks are being sold. This can include the overall employer name and registration variety, information about its percentage capital and other relevant records (e.g. Information about prices or administrators’ info).

  1. Sale and purchase of shares

The client will agree within the SPA to shop for the agency, and the seller will comply with selling the organisation. This sort of clause will normally make it clear that the client will be entitled to all rights and blessings attaching to the proportion being offered, which includes dividends, distributions, and any return of capital declared, paid or made in respect of the stocks being bought upon completion.
 It is also not unusual to encompass a clause wherein the seller waives all pre-emption and comparable rights over the stocks being bought, to make sure that the stocks are being offered free from encumbrances.

  1. Consideration and payment terms

While buying an organisation, one of the key portions of records about the acquisition might be the agreed buy price (additionally called the consideration for the acquisition). It is consequently vital to report the charge, collectively with agreed price phrases, in the SPA. As an instance, this may include whether the purchase rate will be due in a single lump sum on a particular date, or whether it’s far payable through instalments..

  1. Completion mechanics

The factor at which the percentage sale will take effect whilst buying an organisation (and when the client will become the brand new proprietor of the target enterprise) is referred to as “final touch”. The SPA will set out when and where the finishing touch will take place.
 This form of clause may even commonly include any actions that need to be taken to provide finishing touch to take the region e.g. for the sellers to bring a board assembly of the administrators of the target organisation approving the terms of the sale, or to supply sure files to the buyer (e.g. Statutory books).

  1. Warranties

Buying for a business enterprise isn’t always without risks. Warranties are a form of ‘legal promise’ that a dealer offers to a purchaser to offer comfort to the consumer as to the quality of the business at crowning glory. If unfaithful, the purchaser can declare contractual damages for the quantity that it could prove loss attributable to the breach of guarantee. A prize for the violation of the warranty would have been an award for the buyer to repair in the place that would have been if the warranty had not been out now.
 The warranties that can be protected could vary from minimum primary title warranties or, depending on the nature of the enterprise, may be prolonged to include more particular warranties relating to numerous components of the company’s business.

  1. Confidentiality

Buying an organisation can, via its very nature, include the sharing of touchy and private facts. It is therefore important to include a confidentiality clause that obliges each the buyer and the dealer to keep any private statistics they receive about the agreement a secret.

  1. Restrictions on the seller

It’s far commonplace for a customer of a commercial enterprise to need the vendor to agree to certain restrictions, for example, so that they cannot install a competing commercial enterprise in opposition to the customer following of completion or solicit the personnel of the target organisation.

SHARE PURCHASE AGREEMENT – DRAFTING PROCEDURE

  •       Letter of Intent (LOI): A settlement that is non-comprehensive and describes the major conditions of the proposed transaction is called a Letter of Intent.
  •       Due Diligence: In this, there may be an investigation of the organisation completed in depth to confirm the information furnished via the LOI, which includes the prison, financial, and operational reputation.
  •       Negotiation of SPA: Writing and refining the SPA primarily based on the letter of intent and due diligence findings.
  •       Execution of SPA: The reputable signing of the settlement using the legal representative of the parties covered.
  •       Closing: The finishing touch of a transaction, which incorporates the price of the acquisition and the shifting of stocks.

KEY TERMS OF A SHARE PURCHASE AGREEMENT

The following information includes the content of an SPA:

  •       Parties: This includes the dealers’ and consumers’ identification, including their criminal records and addresses.
  •       The Seller: The call of the present-day holders or owners of the stocks. The supplier can be any person, a group, or an organisation.
  •       Sale Shares: It mentions the shares that are being sold and includes the elegance of shares, the number of shares, and any restrictions on transferability.
  •       Purchasing Price: The price agreed for the sale of the stocks includes the payment phrases and any changes based on the last condition.
  •       Representations and Warranties: Statements created by the purchaser and the vendor concerning the completeness and accuracy of the statistics supplied about an enterprise and its shares.
  •       Indemnification: The provisions that guard each of the parties involved from liability that stand up by using breaching the representations, warranties and any other legal claims
  •       Closing Conditions: Earlier than the transaction can be finalised, some specific milestones and activities have to be met along with the regulatory of completion or approvals of the due diligence.
  •       Termination Provisions: The circumstances under which both parties can terminate the agreement if there is a failure to fulfil final obligations or any breach of the representations and warranties.

SHARE PURCHASE AGREEMENT FORMAT

  •       Introduction: It outlines the purpose of an agreement and the concerned parties within the agreement.
  •       Definitions: This includes providing clear definitions of the key phrases used in the settlement.
  •       Sale and Purchase of Shares: It mentions the details of the transferred percentage, which includes the purchase charge, the variety of shares, and the charge.
  •       Representations and Warranties: This factor sets out the statements made by the parties concerning an organisation and the shares of that organisation.
  •       Indemnification: It outlines the protection provided to each party from potential liabilities.
  •       Closing Conditions: This section defines the milestones or occasions needed to close the transaction.
  •       Termination Process: This phase mentions the occasions under which the parties involved can terminate the settlement.

WHY eStartIndia?

eStartIndia is a reliable legal and business services portal committed to offering professional assistance for startups, entrepreneurs, and emerging enterprises. Having a team of skilled professionals, eStartIndia maintains easy legal compliance, effective documentation, and customised support. From preparing a Share Purchase Agreement to managing company registrations, eStartIndia provides quality services with transparency and rapidity. Our online-first model ensures access throughout India, making legal solutions affordable and convenient. With legal prowess coupled with the latest technology, eStartIndia enables companies to concentrate on expansion while we handle the legal complexities.

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