The share purchase agreement is a par excellence legal deal used to transfer the shares of a company. Its main purpose is to take control of an acquired company´s business formed by a plurality of elements -assets, debts, organization, people- coordinated and organized among themselves in order to comply with a specific economic activity.
The signing of a share purchase agreement is usually preceded by a legal audit or “due diligence”, which is the legal, accounting, financial and technical verification about the company’s current situation performed by the buyer.
Once the due diligence phase has been completed satisfactorily, the share purchase agreement is usually signed in a private document (in legal jargon, this phase is called “signing”). However, generally, the consummation of the legal transaction does not take place; i.e., there is no effective transfer of ownership of the shares in favour of the buyer.
This is because, occasionally, the parties deem it appropriate to subject the definitive closing of the purchase transaction to the fulfilment of a series of conditions that must be fulfilled within a specific time frame. For example the prior obtaining of an administrative authorization necessary for the transfer, the favourable resolution of a pending dispute in which the company to-be-acquired is currently involved, etc.. That is why the signing operates as a “promise to purchase” that is subject to the fulfilment of a series of requirements.
Once the conditions stipulated in the agreement are fulfilled, the agreement gains full legal effects. At that time, the usual practice is that the parties to the agreement, buyer and seller, appear before a notary in order to reiterate their consent and proceed to the payment of the sales price and delivery of the shares, considering the ownership of the shares fully transmitted (the so-called “closing” phase). All this will be reflected in a public document that will serve as reliable evidence of the articulated business.
The signing therefore constitutes the moment in which the parties sign the agreement, giving their consent to the legal transaction, i.e. the moment of the execution of the agreement.
The closing is the moment a posteriori in which both parties effectively fulfil their main obligations (delivery of the object and payment of the stipulated price) as the agreed conditions are met, so that the consummation takes place, i.e., the completion of the legal transaction with the following transfer of the shares.
One should note that it is possible for a signing and closing to take place in the same act and not at different times. However, in practice these cases are reduced to the purchase transactions of simple companies with hardly any complexities, having no condition or factor to be taken into account prior to the acquisition.
Regarding the basic content of the share purchase agreement, we should mention the most common clauses:
Clauses of the share purchase agreement
- Intervention, which describes the contracting parties and their corresponding representation
- Purpose of the agreement, which defines the shares that are going to be transmitted
- Consideration, the price to be paid by the buyer in exchange for the acquisition of the shares.
- Declarations and warranties, are a set of statements, normally made by the seller, in which the buyer is guaranteed the correct situation of the company whose shares are sold. The incorrectness and/or inaccuracy of these statements supposes the corresponding assumption of responsibility on the part of the seller and the consequent obligation to compensate the damages and losses caused to the buyer.
- Liability regime, a clause that usually establishes the time and the maximum amount relating to a possible breach.
- Closing conditions, i.e., assumptions that must be met in order for the parties to be obliged to consummate the purchase and sale deal and comply with their respective obligations.
- Warranties, in order to ensure compliance with the obligations of each of the parties (for example, retention of the price by the buyer, granting of a bank guarantee, etc.)
- Additional agreements, for instance, agreements of non-competition, confidentiality, minimum permanence of the seller in the management of the company transmitted, etc.
- Miscellaneous, these are clauses such as notifications, assignment of contract, partial disability, applicable law and jurisdiction, among others.
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