Practical guide on the Share Purchase Agreement

The following guide on the Share Purchase Agreement (SPA), addresses one of the legal transactions in the field of acquisition of mercantile companies. Its main purpose is the passing of control of a company, which includes the collection of rights and obligations, through the transmission of a single asset: the actions or shares of the company itself.

It fits to show that in Spain this kind of agreement lacks particular regulation in Spain. The agreed terms between the parties in the contract, such as the consequence of the will of autonomy, are therefore of great relevancy.

Phases of the Share Purchase Agreement

The most common phases of the Share Purchase Agreement are:

Purchase decision and confidentiality agreement

When a person, physical or judicial, decides to acquire a company through a Share Purchase Agreement, the first step consists of identifying the company whose economic and business activity is of interest to the buyer.

Once the company has been identified and the contact has been initiated, it is normal, if a predisposition for sale exists, to sign an agreement of confidentiality in relation to the information that is going to be offered to the buyer of the future negotiation.

Letter of intent

A letter of intent is a unilateral or bilateral document in which one or both parties in the negotiation declare their commitment, disposition, or offer to continue an existing or to initiate new negotiations.

The letter of intent is a document without any formality, in which the parties have full freedom to draft it with reciprocity, obligation, or any other element that they wish to include.

Legal audit process or Due Diligence

The due diligence phase consists of the process of investigation, legal verification, and financial and technical accounting of all the relevant aspects of the company. The buyer has the objective of obtaining a real understanding of the state of the company that he or she is to acquire.

The main motive for which this process of Due Diligence is completed is to determine, with the highest degree of security possible, the potential risks that could be derived from the sale of shares, both at the time the acquisition occurs as well as at a later time.

Signing of the sales contract

Having satisfactorily finalized the Due Diligence process, the third step consists of the signing of a sales contract in a private document. In the contract, the parties are obliged as sellers and buyers in light of article 1445 of the Civil Code (Código Civil), thus improving the legal business.

Notwithstanding the above, generally, in this phase the tradito, or the transmission of the ownership of shares in favour of the buyer, does not take place.

Generally, prior to the sale of the legal business operated and the deployment of all its effects, it is typical to include in the sales contract a series of suspension conditions, which the buying party must fulfil by a determined period.

These clauses operate as conditions whose compliance is obligatory for the sale of the legal business. This implies that, in practice, signing operates as a buying promise that will only have an effect if the conditions are satisfied by the selling party.

Such conditions can consist, for example, prior procurement of an administrative permit or license, the presentation of such documents in the Mercantile Registry (el Registro Mercantil), or the resolution of contracts that could end up being potentially detrimental to the purchasing party.

Raising to the public the contract of sale or Closing

From the moment that all the included suspensive conditions in the contract of sale have been satisfied, the next step is the elevation to the public of the contract.

The elevation to the public of the contract operates as consummation of the legal business, proceeding the payment of the agreed price or consideration, as well as the delivery of the ownership of the shares or shareholdings of the company.

Thus, the public document implies the starting point for the deployment of legal effects, and therefore habitually operates as reliable proof that the consummation of the legal business has taken place.

Post-closing

In this last phase, the effective execution of the obligations, which the parties have agreed to under the signed contract and elevation to the public, occurs.

This article is not considered as legal advice

Irene Terrazas

Irene Terrazas graduated from the University of Alcalá de Henares with a Law degree. Her practice areas are public and commercial contract law and company law in Spain. For any further enquiries please Contact us