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WHAT IS A SHARE SALE AGREEMENT AND WHEN DO YOU NEED ONE?

A share sale agreement is a contract setting out the what, when and how of the sale of a share in a business.

You need a share sale agreement if you are buying or selling shares in a private company. A share sale agreement may provide for only some of the shares in a company to be sold, or all of the shares in a company to be sold.

If there is a shareholders’ agreement in place governing the relationship between each of the shareholders, you may need to consider this before proceeding with the sale. There may be certain procedural steps that a shareholder may need to meet – for example, if there is a first right of refusal, tag along or drag along rights.

The share sale agreement sets out the rights of each party. It will usually contain the following key terms:

• details of the parties;
• description of the shares being sold – in particular, the type of shares being sold and whether there are any specific terms which attach to those shares;
• the price being paid and how the purchaser will pay – the price might be fixed and paid upfront, or there may be an arrangement where the purchase price is paid by instalments. Depending on the proposed structure, it may be necessary to consider appropriate security for any unpaid amounts;
• warranties – warranties would generally cover such issues as the conduct of the business, the ownership and completeness of assets, the company’s financial and tax position, compliance with the law, potential litigation and environmental issues;
• restraint of trade requirements – this may restrict the ability of the seller to conduct a similar business for a certain period of time in a defined geographic location. Alternately, the purchaser may want the seller to remain in the business – in which case an employment or consultancy agreement may also be required;
• any requirements to finalise the sale – for example, formalising any resignations and ASIC requirements.

If you are looking to buy or sell shares, or bring a new investor into your business, contact Sinclair + May on 03 9111 5660 to ensure the sale goes smoothly.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.

Published Feb 13, 2019