Share Purchase & Subscription Agreement


Template: Share Purchase & Subscription Agreement

What Net Lawman says about this template:

"This is a comprehensive agreement for a new shareholder - an individual or another company - to subscribe for new shares in a private limited company at the same time as buying shares from one or more other existing shareholders. 

This single document records two types of transactions at a time: a new shareholder subscribes for a newly issued shares whilst at the same time buying shares from existing shareholders.

A full raft of warranties protects the new shareholder’s investment as if he were buying whole company outright.

We include an optional provision for a reduction in the final price paid if company profit is not as expected.

The document provides the option to reference any loan the buyer may be making. The terms of any loan will need to be covered in a separate loan agreement

There are also options:

  • as to whether all shareholders are to be bound by warranties or only those who have intimate knowledge because they run the company - the directors
  • to include a guarantor.

It is most likely to be used when a new shareholder wishes to take majority control.

The company may be in any industry and of any size.

The document assumes the subscriber pays in cash but holds back an agreed sum until after the next set of accounts. If the accounting profit is not as promised, then the final balancing payment is reduced.

This agreement provides the same protection to the subscriber as you would expect if the whole company were being bought outright. You have the benefit of 140 warranties (less those you decide to edit out). The penalty reduction of balance due by you is calculated by reference to a simple, flexible formula.

There is an option for one of the selling shareholders to be a trustee (as a trustee, he cannot give warranties).

As drawn, the document binds all the shareholders to the warranties, but you could decide that only shareholder-directors should be at risk.

The document provides the option to reference any loan the buyer may be making. The terms of any loans will need to be covered in separate loan agreements.

Warranties

These are explained in more detail here, but simply put, a warranty is a promise that something is as it is described, and which, if untrue, can allow the side relying on that information to seek compensation.

This document differs from many other shares subscription agreement templates in the number of warranties included.

Warranties are important for two reasons.

The first is that they protect the new subscriber, who does not have the same information as the directors and other shareholders about the state (and value) of the company.

The second is that they can improve the subscriber’s position. Because it is normal practice for subscribers to demand warranties, shareholders often give them without being sure about whether the situation is as warranted. New subscribers can take advantage by asking for more warranties than they might need, and later seeking compensation for those that turn out to be false.

We provide a very full set of warranties, in plain English so it is easy to choose whether you want each to be given or not. Existing shareholders will, obviously, want to limit the warranties given."


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