A Guide to India’s Share Purchase Agreements
A share purchase agreement is a contract between buyers and sellers of target company shares.In most cases, share purchase agreements stipulate that the buyer will acquire all or substantially all of the company’s operations.The buyer would be taking on not only the company’s assets but also its liabilities in such a scenario.Consequently, prior to entering into such a transaction, any potential buyer must properly evaluate the business.
Before investing in a company, a potential buyer would conduct due diligence, making this the first step of the process.The nature, size, and activities of the target company would all influence the scope of the due diligence.Business transactions, permits, licenses, authorizations, agreements, liabilities, assets, borrowings, and so on are typically examined as part of the due diligence process.of the business.
A true understanding of the company’s operations and any potential liabilities for the buyer would be gained from this.Additionally, this will assist in determining the purchase price for the company’s shares.The Share Purchase Agreement would also deal with the findings of the due diligence.The company or the sellers would list any upcoming actions they need to take.In a similar vein, the sellers would provide an indemnity against any anticipated liabilities by listing them.
The parties should negotiate and create a term sheet that addresses the key terms of the Share Purchase Agreement prior to drafting it.The parties would already have agreed on all of the important terms, making it easier to draft share purchase agreement and negotiate the Share Purchase Agreement.
Although the purpose of this article is to clarify the two main sections of a Share Purchase Agreement, it is by no means comprehensive.
Sale And Purchase of Shares Clause
A vital condition of the understanding, this provision sets out the quantity of offers that are being offered to the purchaser and the cost of these offers.It also explains how and when the money would be paid, as well as the timeline for doing so.This is crucial because the parties typically have responsibilities to fulfill before the shares can be transferred. As a result, the payment and transfer of shares typically do not occur simultaneously with the signing of the Share Purchase Agreement.These responsibilities can take the form of approvals, hints, or other forms.that must be obtained from third parties by the seller and buyer.
Earn-Out and Holdback Clause
Currently, the purchase price can be fixed or subject to changes based on the terms agreed upon by the parties.The financial results of the previous years and the company’s performance are taken into consideration when setting a purchase price.However, the buyer would expect the company to perform just as well, if not better, than in previous years during this incubation period before shares are transferred.The purchase price is fixed, but there is room for change to make sure that this happens.These adjustments can be a reward for the company’s achievement of a financial milestone or a guarantee of comparable performance to previous years.The buyer is protected from any change in the value of the company’s shares by these adjustments.For instance, the buyer might offer to pay more than the purchase price if the business makes a certain amount of money in the next quarter before the shares are transferred.