Whether you’re buying or selling business, you need a signed Share Purchase Agreement(SPA)- or an Asset Purchase Agreement . Let’s see what happens if you don’t have one.
As a seller, you want to walk away with the cash but with no come-backs. That’s why you have an SPA to give the exact timing on when you get paid. You don’t want to end up having transferred all the shares but still waiting for the promised cash. An SPA also leaves no doubt as to what you promised and what you didn’t. Plus (unless you have to) you don’t want to share future business risk with the buyer at the steering wheel. A bit like selling a car.
As a buyer, you don’t need nasty surprises. You want to know what you’re taking on – and what you’re not. Without an SPA you might think you are buying a clean business, but later find a defect or a drawback which can’t be fixed. You also need certainty about exactly when you become the business owner. You don’t want to part with the cash and then spend a single moment when you don’t have the cash AND you don’t have the shares either.
When a business sale falls apart, without an SPA, it’s a disaster on both sides- and for all the workforce. With a proper SPA, there is a light at the end of the tunnel- and the tunnel is a lot shorter.
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Managing Partner