Clauses and content of the Share Purchase Agreement

Basic content of the share purchase agreement

The basic content of the share purchase agreement includes, among others, the following most common clauses:

  • Definitions: The share purchase agreement usually includes a section dedicated to defining the terminology used throughout the document in order to facilitate the understanding of the contract.
  • Intervention: This clause includes the contracting parties, as well as their corresponding representation.
  • Contract objective: This clause determines that the trading of the company will be through the transmission of its own actions or shares.
  • Price or consideration: Stipulates the price or consideration the buyer must satisfy to acquire the actions or shares of the company.
  • Declarations and guarantees: It constitutes the most relevant clause in the share purchase agreement. It consists of joining of the realized declarations- typically on part of the seller- that guarantee to the buyer the correct situation of the company whose actions are sold according to the results of Due Diligence. The manifestations and guarantees comply with the purpose of assumption of liability on the part of the seller in the event that what has been declared in the contract does not conform to reality. If this is the case, the seller will be obliged to incur the damages caused to the buying party.
  • Limitation on liability: A temporary and quantitative limit is usually agreed to that the parties must respond to in the event of possible incompliances that may occur.
  • Preceding conditions: It is common to introduce a clause that establishes a general series of conditions for the seller to fulfil so that the signed contract can initiate its effects and complete the legal business.
  • Guarantees: They can be guarantees of a diverse nature; their purpose is to assure the compliance of the signed obligations by both parties of the contract for the sale of shares.
  • Other agreements: Generally, in this type of contract, if fitting, clauses of confidentiality, expenses or taxes are included.
  • Internal management of the company. It is common to include stipulations that commit the seller to run the company’s business under the same terms until the effective transmission of actions or shares.
  • Miscellaneous: Miscellaneous clauses include clauses such as notifications, cessions, applicable laws and jurisdiction, languages or the duration of the contract.
  • Appendixes and accessory cards or side letters: While the purpose of the appendixes is to add documents to the contract that facilitate the understanding of the contract, side letters clarify or modify aspects of the contract without becoming part of it in full.

Examples of clauses in contracts for the sale of shares

Finally, and by way of example, we list below two models of clauses that are usually included in the purchase and sale contract of shares as declarations and guarantees, for they are in general terms, of great relevance:

The company [name of company] is a public, limited company that is duly incorporated, valid and enforced by the Spanish legal system, and has all the necessary powers and permits, corporate or otherwise, to carry out its activity, such and how it is being developed today, and to own and lease its properties and assets.

This clause implies a declaration on the part of the seller that guarantees to the buyer that the company will have all the necessary permits in accordance with Spanish legislation.

On the other hand and regarding labour questions, it is common to add clauses such as:

The company complies with all the materials required by the current labour legislation, respecting the work practices, terms and conditions of employment, salaries and hours of work, labour and health insurance and the obligations of information and payment to the authorized governmental agencies.

It is, again, a declaration on the part of the seller and in favour of the buyer to guarantee that the company to be acquired fulfils all the requirements of the Spanish labour legislation.

Last but not least, let’s highlight the importance of a good legal advice throughout the entire acquisition process, not only concerning the drafting stages of the basic contents of the contract for the sale of shares, but also to detect and prevent present and future risks that can derive from such operations.

For further information regarding the Share Purchase Agreement,

Please note that this article is not intended to provide legal advice.

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