When it comes to buying and selling businesses, one of the easiest ways to transfer ownership is to sell the company`s shares. Indeed, although the ownership of the company may change, the day-to-day activities of the company continue, with employees, contracts and assets remaining in the company. In principle, the transfer of shares in UK limited liability companies usually involves a two-step process. First, the buyer and seller enter into a purchase agreement, often referred to as a share purchase agreement, in which they agree on the price at which the shares will be sold and the other terms of the transfer. When a seller transfers its shares, all assets and liabilities also pass to the buyer at book value. All contracts (e.B. Leasing contracts) in which the seller is located, also transferred to the buyer. Therefore, buyers must ensure that they are doing their due diligence of the business they wish to invest in. If the company establishes itself as a separate legal entity from its shareholders, the buyer is unlikely to assume any responsibilities. In most transactions, confidential information is disclosed by both parties, so it is common for the stock purchase agreement to include a confidentiality provision that addresses these issues. A share purchase agreement (SPA), also known as a “share purchase agreement” or “share transfer agreement”, is an agreement that sets out the terms and conditions of the sale and purchase of shares of a company.
A share purchase is the sale of a person`s property in a corporation. In contrast, an asset purchase is the sale of a company`s individual assets or liabilities. For example, a business asset is a tangible item or intangible resource such as: The buyer of a share sale may want to impose restrictions on the seller once the sale is complete. Typical restrictions include the seller`s consent not to be involved in competing businesses and non-poaching of the target company`s customers, suppliers, and employees. These are included to protect the buyer and the target business. A buyer wants to make sure that the seller does not do anything after the sale is completed that could harm the value of the target business. Details of all pension plans, stock plans, insurance plans and other employee pension plans. The second step is the transfer of the share(s). At the end of the second stage, the buyer becomes the owner of the shares that were part of the sale transaction. This second step is often referred to as a “settlement”. Essentially, due diligence is the process by which the buyer of the target shares reviews the company`s activities, key people, document records, and assets.
The process is designed to alert the buyer to the risks inherent in buying the target shares, but also to justify the value of the investment or purchase price. An equally important third value of due diligence is identifying the necessary consents that may be required before shares can be transferred (i.e., banks, owners, or commercial contracts). If the buyer buys a company through a sale and purchase of shares, he takes back the shares of the target company. The buyer acquires the target company with all its assets and liabilities. A share sale may be easier than an asset sale, although full due diligence must be performed on all liabilities related to the purchase of the business. In the case of an asset sale, all liabilities are usually left to the target company from which the assets are purchased. Warranties are a statement of fact or promises made by each party to assure the other that certain conditions are true. Collateral is particularly important in any share purchase agreement because it reduces the risk of a share sale for the buyer. One of the main purposes of warranties is to provide the buyer with a possible remedy if a statement about the target company turns out to be false, which can change the actual value of the target company. Warranties can highlight any information the buyer should know that could affect the value of the business or even the buyer`s decision to buy the business.
It also acts as an information gathering mechanism for the buyer and helps with any due diligence before the sale of shares is completed to give the buyer some comfort in case the business is not as the seller presented it to him, e.B. .