The share purchase agreement (SPA acronym) business owners use is vital to business people who want to buy or sell a business. It’s one of the easiest ways to own a part of a business without affecting its assets. However, you have to make sure that the SPA agreement is legally binding and covers everything it should.
What’s an SPA?
The SPA, meaning in business, is a legally binding document that facilitates the sale of shares in a company. It outlines all the requirements and states what each party must do for the agreement to be fulfilled.
It helps protect the parties against any possible legal claims. The ultimate goal is for the purchasing party to become a shareholder in the company. This document is essential when you’re venturing into the world of the best stocks to purchase in the coming year.
Key clauses you must include
Now that we know the answer to “What is an SPA in business?”, we examine its essential details. Every SPA finance document has some specific clauses it must include; otherwise, it might not be considered legally binding. Without these clauses, there’s also the chance that one party can take advantage of the other.
Names of parties
The first clause you must add in the SPA contract is the names of both parties. You must clearly state who the seller and buyer are, along with their contact details and registered name. While a company, entity, or team can be involved in the purchase, the name of the primary buyer appears on the document.
Description of the stock/shares
Secondly, you should describe the shares that are being sold. This description should be as detailed as possible, which is why people use professionals like Acquinox Advisors SPA M&A experts to draw up the contract. Information you should add includes details like the number and class of shares being sold.
The stocks/shares’ price
The SPA M&A (mergers and acquisitions) experts use will also provide a price breakdown of your shares. This document should list the overall price that the buyer must pay and, if applicable, the individual prices of the different shares.
Date of settlement and payment schedule
Typically, following the price, you’ll have to add the last date the buyer has to purchase the shares. It’s also good to add a payment schedule if the amount is too large or circumstances require multiple payments. That way, there’s no issue about when the seller will receive their money.
Any preconditions
Sometimes, the contract is drawn up without all of the permissions being given. In that case, the agreement must list preconditions, such as the purchase only being eligible if the board’s warranties or conditions are met.
The document must include preconditions surrounding the shareholders’ consent, the good standing of the company, the success of necessary financial arrangements, regulatory approvals, and so on.
Restrictions on the agreement
Restrictions on the sale include clauses preventing the buyer from reselling the shares or limiting the buyer’s control of the stock/shares. It’s essential that the document lists all restrictions on the shares; otherwise, the buyer might have grounds to sue the seller. Essentially, these restrictions are regulations and rules of the company the buyer is purchasing shares of.
Description of the transfer process
It’s also good for the SPA M&A advisors to list the transfer process in the document. This way, the seller can outline when the buyer receives the shares. This protects the seller against the buyer taking control of the shares without having paid for all of them. The document also describes the legal process of transferring shares to make sure all parties understand what’ll happen.
Liabilities
The buyer must do their due diligence to ensure the company is in good standing and has a healthy business profile. However, the seller also has the responsibility of listing any liabilities associated with the shares.
These liabilities can include financial or environmental liabilities that could affect the shares’ value. These issues must be disclosed; otherwise, the buyer can levy a breach of contract claim against the seller.
Warranties and indemnities
While liabilities go some way in assuring the buyer, ultimately, the buyer isn’t protected if unexpected problems appear with the shares after the sale. That’s where warranties and indemnities come into play.
Warranties are the seller’s promises about the company’s state and assets. If violated, the buyer can argue against the original price and contract. However, indemnities are where the seller protects. It states that it’s the buyer’s responsibility if they incur losses on breached warranties and known liabilities.
Create a legal Share Purchase Agreement
When drawing up an SPA, it’s best to use an expert like an Acquinox Advisor, as these professionals know what clauses should be in these agreements. They also know how to make the wording airtight so that both parties get what they should. SPA legal documents are crucial agreements in the business world, so you must understand what’s expected to be in one when selling or purchasing shares and stocks.
