Shares Purchase Agreement

A Share purchase agreement means the legal agreement/contract between the shareholders and the company at the time of purchasing the company shares and consists of details like an investment, allotment, lock-in period, terms of investment, etc. Then the indemnification is filed by both buyer and seller of the shares.

As the purchaser has invested their hard-earned money in the shares of the entity they must need to secure themselves from any sort of fraud or misconduct against them so to give a legalized effect to the same the share purchaser and the share allottee or seller must enter into a shares purchase agreement to avoid any disputable situation in future.

A Share purchase agreement is a legal document between the vendor and purchaser. This contract is drawn to ensure both parties involved have mutually agreed on the terms of the contract. The details include the name of the company or companies, number of shares, and the price of the shares.

In this agreement in which all the relevant details regarding the purchase of shares are mentioned, such as several shares, the amount agreed per share, the total amount of consideration, etc.;

Then the indemnification is filed by both buyer and seller of the shares.

Then the executed purchase transaction will be submitted to the company for the transfer of the shareholder's name in the company's books.

It is a very important document from the perspective of the purchaser or seller of the shares of the company who had invested in the shares of the company and provide funds to the company to manage the operations of the company and expand their business for the sake of capital appreciation as when the company earns more the value of the share in the market also rises. Every company enters into a share purchase agreement format; it is the documented proof available with the purchaser of the shares of the company, a copy is also available with the seller. In case of any dispute, it can be easily resolved by giving preference to the agreement executed. It is advisable for every person who has invested their hard-earned money in the shares of the company to execute a proper shares agreement at the time of buying the shares of the company.

It is also important to note that in the event of either parties not holding their end of the bargain, the other party can file a complaint and sue for damages.

Let us understand the process according to the share purchase agreement format through the discussion below.

• Decide the company of which the shares we want to purchase.
• Search for the prospective shareholder who wants to sell the same.
• General details of the company and of the purchaser and seller such as name, address, date of the agreement, number of stocks to be purchased, rate of purchase, etc.;
• Defining the terms mentioned in the shares purchase agreement, such as the reference to the company, will be named as a company; the purchaser will be the share purchaser who had agreed to purchase the shares of the company.
• About the conditions pre and post-execution of the transaction of purchase such as undertaking, seller warranties, purchaser warranties, etc.
• The indemnification by both the parties about the trueness of the facts;
• After some other due formalities at the end of a company, the purchased shares got transferred in the name of the purchaser.

Let us understand the advantages of following a share purchase agreement template through the points below.

• There is no involvement of any third party.
• The seller of the shares will have no liability pursuant upon the sale of shares to the purchaser, which now becomes due to the new buyer.

Despite the obvious upsides, there are also a handful of disadvantages of inculcating the share purchase agreement format. Let us discuss them through the points below.

• Sometimes it is seen that there are no share purchase contracts between the shares seller and the purchaser of the company's shares. In that situation, the shares remain in the name of the seller, which creates unauthentic rights.
• The major disadvantage of this agreement from the perspective of a buyer is that the last outstanding dues may sometimes also transfer in the name of the buyer, resulting in unnecessary charges.

Both share purchase and share transfer agreements are closely discussed and often confused for one another. Let us clarify the differences in the concepts through the comparison below.

• The term shareholder agreement is with regards to the agreement between the shares purchaser and the shares seller regarding the terms and execution of such terms and in which manner, on the other hand, the share transfer is between the shares seller and the company to transfer such shares for which the shares purchase agreement was entered into.

• The shares transfer contract is the succeeding step taken after executing the shares purchase contract to transfer such shares in the name of the purchaser.
• Share transfer agreement includes shares purchase, but shares purchase agreement does not include a share transfer.
• Shares purchase contract could be canceled, but, on the other hand, the shares transfer contract could not be canceled once executed or made then binding upon the parties to execute.
• The terms and conditions in the shares transfer agreement are binding and have legal obligations, but on the other hand, the shares purchase agreement is considered less obligatory.
• After the execution of the shares transfer contract, the obligations upon the seller come to an end, but on the execution of the shares purchase contract, the seller still has liabilities as in the books of a company, the seller is still the shareholder of the company.
• Share transfer also acts as an intimation to the company regarding the sale of shares by the existing shareholder.

This has been a guide to what is a Shares Purchase Agreement. Here we explain its process advantages, and compared it with share transfer agreement. You can learn more about from the following articles –

• Voting Shares
• Shareholders Meeting
• Shareholder Structure
• Majority Shareholder
• Preferred Stock