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What Is A Share Sale?
A buyer has two options when it comes to purchasing a company. They can either buy it in the form of a share sale or in the form of an asset sale.
A share sale is when the shareholder sells shares in a company—including its assets, liabilities and debts.
On the other hand, an asset sale is just that—the owner can purchase assets in the company, such as client lists, trade marks, goodwill, etc.
How Does The Process Work?
There are two types of share sales:
- When you’re selling all of the company’s shares
- When you’re only selling a portion of the company’s shares
If it is only a portion of shares being sold, the buyer would need to enter the Shareholders Agreement with the existing shareholders. This can be carried out through a Deed of Accession or by creating a new Shareholders Agreement.
A Deed of Accession is useful because the existing shareholders don’t have to re-sign anything. A new Shareholders Agreement will involve getting all the Shareholders (old and new) to sign it.
What Do I Need To Think About During A Share Sale?
Firstly, if you’re a buyer, it is important to conduct due diligence to minimise the risks and be aware of the liabilities and debts of the company.
It is also important to know what type of shares you’re purchasing or selling. There are different types of shares, such as preference shares or shares with different voting rights.
If applicable, it’s also important to look at the existing Shareholders Agreement or Company Constitution. This is to make sure that the share sale is consistent with those documents. For instance, in some cases, there may be a right of first refusal where the existing shareholders must be offered the shares first, before selling it to third parties.
Key Terms To Include In A Share Sale Agreement
To ensure the share sale goes smoothly, some key things you should address in a Share Sale Agreement are:
- Shares: The agreement should include the number of shares a buyer is purchasing, and the type of share. This determines what type of rights they have.
- Price: The number of shares and the purchase price of the shares will determine the total amount the purchaser will pay—an obvious and critical piece of information in these agreements.
- Completion: This will state when, where and how the seller will transfer the shares to the buyer. This could include things like providing a signed transfer form and share certificates.
- Pre-Sale Conditions: There could be pre-sale conditions that need to be fulfilled. These could be in relation to confidentiality or a promise to keep existing employees.
- Warranties and Indemnities: These terms are statements and promises that are representations about the business and the shares that are being sold. If the seller makes false representations, then this allows recourse for the buyer in the form of compensation or termination.
- Restraints and Non-Competes: These are where all the shares in the company are being sold. The agreement may contain clauses relating to restraint of trade, non-poaching or non-solicitation clauses.
- Dispute Resolution and Termination Procedures: If there are any disputes, there needs to be efficient dispute resolution mechanisms stated in the agreement. Similarly, termination procedures should address the consequences of termination and monetary relief (if applicable).
Need A Lawyer?
Whether you’re deciding between an Asset Sale or Share Sale, it can be useful to speak to a lawyer.
It’s important to get your Share Sale Agreement together in an efficient manner, particularly as there are ASIC obligations relating to registration that must be completed.
Don’t hesitate to give us a call on 1800 730 617 or email us at team@sprintlaw.com.au for a free, no-obligation chat about your share sale arrangement.
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