Buying Shares in a Business

I am buying some shares in a company – why do I need to enter into a share sale agreement and shareholder agreement

If you are considering buying shares in a company, you may be wondering what documents you should be entering into.  To do this properly, you will need to enter into a share sale agreement and a shareholder agreement. These two documents are essential to protect your investment and outline your rights and obligations as a shareholder. In this blog, we will discuss the importance of both agreements and what they entail.

Share Sale Agreement

A share sale agreement is a legal document that outlines the terms and conditions of the sale and purchase of shares in a company. It is a crucial document that protects both the buyer and the seller, and it should be drafted by an experienced commercial lawyer.

The share sale agreement will contain important details about the transaction, including:

• The number of shares being sold
• The purchase price of the shares
• Payment terms and conditions
• Any representations and warranties made by the seller (for example representations regarding the company’s accounts, financial statements, tax position, and other financial matters)
• The transfer of ownership of the shares
• Conditions precedent to completion of the sale (for example if you need finance to purchase the shares)
• Governing law and dispute resolution mechanisms

The share sale agreement is an important document that should be carefully reviewed and negotiated. It is essential to ensure that the terms of the agreement are fair and reasonable for both parties.

One of the critical provisions in a share sale agreement is the representations and warranties made by the seller. These are statements made by the seller about the company being sold and are intended to provide the buyer with assurances about the company’s financial and legal position.

If the seller breaches any of the representations and warranties, the buyer may have the right to seek damages or terminate the agreement. It is essential to ensure that the representations and warranties are accurate and complete to avoid any potential disputes or litigation in the future. See our other blog on Sellers warranties

Shareholder rights and restrictions

This provision outlines the rights and restrictions of the shareholders, such as voting rights, dividend payments, and the transfer of shares.

Management of the company

This provision outlines how the company will be managed, the roles and responsibilities of the directors, and the decision-making process.

Dispute resolution

This provision outlines the process for resolving disputes between the shareholders. 

Deadlock provisions

This provision outlines the process for resolving a deadlock between the shareholders if they are unable to reach a decision.

Exit strategies

This provision outlines the options for shareholders to exit the company, such as a buyback or a sale of the shares.

A shareholder agreement is an important document that can protect your investment and provide you with additional rights and protections. It is essential to ensure that the agreement is carefully drafted and negotiated to ensure that it meets your needs.

If you are considering buying shares in a company, it is essential to seek the advice of an experienced commercial lawyer. A share sale agreement and shareholder agreement are essential documents that can protect your investment and provide you with additional rights and protections. You should not part with any money until you have received advice on these crucial documents and all parties have signed them.

By working with an experienced commercial lawyer, you can ensure that both agreements are carefully drafted and negotiated to meet your needs and protect your investment.

If you need assistance with buying shares in a business, book in for a free consultation with the team from Rise Legal who have expertise in this area. 

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