Whether you’re buying or selling a business, you need a signed Share Purchase Agreement (“SPA”) – or, depending on the transaction, an Asset Purchase Agreement. Let’s look at what can happen if you don’t have one.
Why Sellers Need a Share Purchase Agreement
As a seller, you want to walk away with the cash but with no come-backs. That’s why an SPA is important. It should clearly set out the exact timing and conditions for payment, so you don’t end up having transferred all the shares while still waiting for the promised cash.
An SPA also leaves no doubt as to what you promised and what you didn’t. It can clearly define your responsibilities, warranties and liabilities and, where appropriate, limit your exposure after completion. Plus, unless you have to, you don’t want to share future business risk with the buyer at the steering wheel. It’s a bit like selling a car – once you have handed over the keys, you want to know exactly where your responsibility ends.
Why Buyers Need an SPA
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, only to later discover a defect, liability or other drawback which cannot easily be fixed.
An SPA provides greater certainty about the business being acquired, the assets and liabilities involved, the purchase price and the conditions that must be satisfied before completion. 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 have neither the cash nor the shares.
Protecting Everyone Involved in the Transaction
A well-drafted SPA can help both parties understand their rights and obligations and reduce the risk of disagreements after the transaction has completed. It can also address important matters such as warranties, indemnities, completion arrangements, confidentiality and post-completion obligations.
When a business sale falls apart, without an SPA, it can be a disaster on both sides – and potentially for the workforce as well. With a proper SPA, there is a light at the end of the tunnel – and the tunnel is a lot shorter.
Buying or selling a business? Our corporate lawyers can assist with preparing, reviewing and negotiating Share Purchase Agreements and other transaction documents to help protect your interests throughout the process.
For legal advice or assistance with corporate transactions and employment matters, please contact James Berry Law to discuss your requirements.
This article does not constitute legal advice and should not be relied upon as such. For specific advice, please contact us.
