What is it?

As the name suggests, a share sale agreement is a contract whereby one party agrees to purchase shares in a company from the other party.

Application for small business people

If small business people wish to acquire a new business, then one way of accomplishing this is by purchasing all of the shares in another company. Acquiring a new business in this way can, in certain circumstances, be simpler and less disruptive to the company than entering into a business sale agreement.

Transferring the ownership of shares effectively means that the purchaser simply becomes the new owner of everything owner by the company. The assets and liabilities of the company itself don’t need to be transferred separately as they are owned by the company itself.

In entering a share sale agreement, the purchaser is agreeing to take on all of the pre-existing rights and obligations of the company. Purchasers need to be very careful to undertake a thorough due diligence to ensure that they are fully aware of any current and future liabilities of the company. The purchaser will often request a warranty from the seller that there are no undisclosed liabilities.

An advantage of transferring ownership of a business in this way is that the contracts in the company’s name can usually continue without impact. Relationships with customers, suppliers and employees need not be disrupted.

6 key things to consider

When entering into a share sale agreement, it is important to carefully consider the following six key factors:

  1. Is the agreement for all of the shares in the company, or only a portion?
  2. What is the market value of the shares?
  3. Is the purchaser aware of all of contracts that the company is a party to?
  4. Do any of the contracts held by the company require the consent of the other party before a share sale can take place?
  5. What are the tax and stamp duty consequences of the share sale for each party?
  6. Does the share transfer need to be registered with the Australian Securities and Investments Commission?

 

Joe Kafrouni
Legal Practitioner Director
Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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