{"id":30525,"date":"2021-05-17T14:36:15","date_gmt":"2021-05-17T09:06:15","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=30525"},"modified":"2021-05-17T14:36:18","modified_gmt":"2021-05-17T09:06:18","slug":"drafting-of-share-purchase-agreement","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/","title":{"rendered":"Drafting of Share Purchase Agreement: Underlining the Important Clauses"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The share purchase agreement (SPA) refers to a legal document that outlines the buyer and seller&#8217;s role for a given share transaction. The share purchase agreement is typically used when the individuals are transacting a large number of items. In this write-up we will talk about the inclusion of the important clause for Drafting of Share Purchase Agreement in detail. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#Drafting_of_Share_Purchase_Agreement_An_Overview\" >Drafting of Share Purchase Agreement: An Overview&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#How_Drafting_of_Share_Purchase_Agreement_is_Beneficial\" >How Drafting of Share Purchase Agreement is Beneficial?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#Common_Loopholes_in_the_Share_Purchase_Agreement\" >Common Loopholes in the Share Purchase Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#What_Detail_to_Consider_While_Drafting_of_Share_Purchase_Agreement\" >What Detail to Consider While Drafting of Share Purchase\nAgreement?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#Standard_clauses_to_Consider_While_Drafting_of_Share_Purchase_Agreement\" >Standard clauses to Consider While Drafting of Share\nPurchase Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#Five_Easy_Steps_to_File_a_Share_Purchase_Agreement\" >Five Easy Steps to File a Share Purchase Agreement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/drafting-of-share-purchase-agreement\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Drafting_of_Share_Purchase_Agreement_An_Overview\"><\/span>Drafting of Share Purchase Agreement: An Overview&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A share reflects a degree of\nownership in an organization, and the no. of shares available at the individual\nshareholder manifests their stake in the company. This agreement encloses a\nbuyer &amp; a seller. The buyer intends to sell its company&#8217;s share to the\nbuyer.<\/p>\n\n\n\n<p>The no. of shares &amp; price of the same would be mentioned in the <a href=\"https:\/\/corpbiz.io\/share-purchase-agreement\"><strong>share purchase agreement<\/strong><\/a>. A letter of intent is drafted before the said agreement, and the buyer must examine it carefully to ensure that it matches the SPA to the fullest. If there is any incorrect manifestation of the warranties and responsibilities, then the defaulter will be penalized accordingly. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Drafting_of_Share_Purchase_Agreement_is_Beneficial\"><\/span>How Drafting of Share Purchase Agreement is Beneficial? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>It helps in legalizing the deal between the partners. <\/li><li>It Clarify the roles and obligations of parties to the\ntransaction.&nbsp;<\/li><li>It gets rid of disputable matters to have the potential to\nhinder to buyer-seller relationship.<\/li><li>Tax benefit.<\/li><\/ul>\n\n\n\n<p><strong><em>Few attributes of the share purchase agreement are:-<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Few-attributes-of-the-share-purchase-agreement-are.png\" alt=\"Drafting of Share Purchase Agreement is Beneficial\" class=\"wp-image-30565\" width=\"474\" height=\"798\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Few-attributes-of-the-share-purchase-agreement-are.png 524w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/05\/Few-attributes-of-the-share-purchase-agreement-are-178x300.png 178w\" sizes=\"(max-width: 474px) 100vw, 474px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Common_Loopholes_in_the_Share_Purchase_Agreement\"><\/span>Common Loopholes in the Share Purchase Agreement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The incorrect manifestation of warranties&nbsp;<\/li><li>The price &amp; number of shares being sold.<\/li><li>Purchase price adjustments.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Detail_to_Consider_While_Drafting_of_Share_Purchase_Agreement\"><\/span>What Detail to Consider While Drafting of Share Purchase\nAgreement? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>The following information should be included while the drafting of Share purchases agreement:-<\/strong><\/em><\/p>\n\n\n\n<ul><li>Firm detail&nbsp;<\/li><li>Seller and purchaser of shares<\/li><li>Kind of shares being sold i.e. (<strong><em>voting shares and non-voting\nshares*)<\/em><\/strong><\/li><li>Termination<\/li><li>Dispute resolution clause<\/li><li>Price of the shares being sold<\/li><li>Payment details<\/li><li>Number of shares being sold<\/li><\/ul>\n\n\n\n<p>The member having&nbsp;<strong>voting shares*<\/strong>&nbsp;has an authority to question against the BOD&#8217;s decision or policy formulation. Whereas&nbsp;<strong>non-voting shares*<\/strong>&nbsp;do not give such privilege to the members.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/difference-between-shareholder-agreement-share-purchase-agreement\/\">Know the Difference between Shareholder Agreement &amp; Share Purchase Agreement<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Standard_clauses_to_Consider_While_Drafting_of_Share_Purchase_Agreement\"><\/span>Standard clauses to Consider While Drafting of Share\nPurchase Agreement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>Following are the standard clauses that often find their way in the share purchase agreement.<\/strong><\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Parties<\/h3>\n\n\n\n<p>Parties to the agreement are a\nsignificant factor for any deal. In SPA, the buyer and the seller are the\nparties to the contract. Sometimes the firm is incorporated for a SPA or any\ncompany with no fiscal record. In these scenarios, a guarantor is appointed for\nthe claims promise made in the contract.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Recitals<\/h3>\n\n\n\n<p>Recitals generally include the\nvalid information and objectives of the transaction and each party&#8217;s\nrole.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Considerations and sale of shares<\/h3>\n\n\n\n<p>Payment structure ought to be\nmentioned descriptively. About the amount that is payable on closing, deposit\nto be submitted at the time of execution, the sum to be set off at the time of\nthe violation of the warranties or indemnity amount. The payment will be done\npartially or wholly or when it will be triggered. All these delicate details\nshould be clearly mentioned in consideration terms.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Definitions and Interpretations<\/h3>\n\n\n\n<p>The definition&nbsp;of the terms mentioned in the contract ought to be defined as what it implies. The clause should be clarified in the same way as the definition of the terms and phrases are stated. The drafting of share purchase is not possible without proper definition and interpretations. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Closing<\/h3>\n\n\n\n<p>This clause must entail all the\ninformation (including the smaller ones), including the time, destination, and\nmethod in which closing shall be executed.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Condition precedent<\/h3>\n\n\n\n<p>This clause should represent\nthe individuals who are liable for authorization, permissions &amp; permits.\nThis clause must encompass the warranties, representations, obligations &amp;\nexecution of the agreement.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Condition subsequent<\/h3>\n\n\n\n<p>In the rarest case, there would\nbe a requirement of this clause because, in SPA, it becomes needless. In case\nof a condition&#8217;s violation, a subsequent buyer should be protected.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Seller&#8217;s Representations &amp; Warranties <\/h3>\n\n\n\n<p>Vendor&#8217;s representation as to\nthe no. of shares held by them &amp; the list of the director&#8217;s. Other\naffirmative detail furnished by the seller such as loan information, pending\ndispute, accounts transparency. Thus, the clause must render proper\nclarification on the vendor&#8217;s right to sell their share to the buyer.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Covenant by the Parties<\/h3>\n\n\n\n<p>It is included to render some\ndegree of relaxation to the concerned parties. It is needed from the seller\nregarding the company&#8217;s management.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Buyer&#8217;s warranties &amp; representations<\/h3>\n\n\n\n<p>It is typically a repeating\nclause to protect the party&#8217;s interest.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Confidentiality<\/h3>\n\n\n\n<p>It is perhaps one of the most\nsignificant clauses in SPA. At this stage, parties shared the company&#8217;s\nclassified detail, so the clause aids in isolating the information, and it\ncannot be accessed without the parties&#8217; permission. Confidential clauses are\ntypically kept time-barred from a time period ranging from 18 months to two\nyears.&nbsp;Drafting of share purchase agreement is incomplete and invalid with\nthis clause. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Force Majeure <\/h3>\n\n\n\n<p>Such clauses are mainly\nincorporated to tackle unexpected scenarios and impart transparency in the\nshare purchase agreement. It is regarding the fiscal crisis and dynamic market\nconditions.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Indemnification<\/h3>\n\n\n\n<p>This clause talks about the\nclaim amount, time limit, procedure, and the subject matter.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Resolution of dispute&amp; arbitration<\/h3>\n\n\n\n<p>Arbitration refers to a dispute\nsettlement mechanism that can be modified as per the party&#8217;s need and nature of\nthe dispute. The parties have the authority to choose the seat of the arbitral tribunal,\nthe language of the arbitration, the number of arbitrators; the need for\nspecific qualification of the arbitrators; the applicable cost division &amp;\ncounsel fees &amp; the possibility for legal proceedings against the arbitral\naward. Given the procedural versatility, it is viable to save cost and time via\narbitration.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Termination<\/h3>\n\n\n\n<p>&nbsp;The clause should explicitly define conditions\nregarding the termination of the Share purchase agreement.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Jurisdiction &amp; general clause<\/h3>\n\n\n\n<p>Indian laws will be pertinent. The place of the buyer&#8217;s <em><strong>court<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Court\"><em><strong>[1]<\/strong><\/em><\/a><\/sup><em><strong> <\/strong><\/em>will have jurisdiction.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Five_Easy_Steps_to_File_a_Share_Purchase_Agreement\"><\/span>Five Easy Steps to File a Share Purchase Agreement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Review of the share purchase agreement by both the parties.<\/li><li>Signature by both the parties. A witness can be signatory as well in case\nof any doubt on the purchaser.<\/li><li>Copies should be made for a purchaser, seller and the company.<\/li><li>Giving the certificate after the payment.<\/li><li>It can register if you meet certain criteria.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>One has to consider the clause above during the Drafting of Share Purchase Agreement. Since such documents are highly prone to error, hiring a professional for Drafting of Share Purchase Agreement is advisable. Kindly share your concern regarding this topic by dropping the message in the comment box, we will be glad to hear from you.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/share-purchase-agreement-in-nbfc\/\">What is Share Purchase Agreement in NBFC? <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The share purchase agreement (SPA) refers to a legal document that outlines the buyer and seller&#8217;s role for a given share transaction. The share purchase agreement is typically used when the individuals are transacting a large number of items. In this write-up we will talk about the inclusion of the important clause for Drafting of [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":30563,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[438],"tags":[1748],"acf":{"service_id":"275"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":4818,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30525"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=30525"}],"version-history":[{"count":11,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30525\/revisions"}],"predecessor-version":[{"id":30567,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/30525\/revisions\/30567"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/30563"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=30525"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=30525"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=30525"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}