A Share Purchase Agreement is a legal agreement designed to transfer ownership of shares from an existing shareholder to another individual or entity. This is an important tool in corporate operation, guiding parties to conduct share purchase and sale transactions transparently and legally. To understand more about the main terms of the Share Purchase Agreement, we would like to invite you to have a look at TNTP’s article below.
1. What is a Share Purchase Agreement?
Share transfer is the transfer of their contributed capital by shareholders in a joint-stock company to other shareholders without changing the charter capital structure of the enterprise. The share transfer is specified in Point d, Clause 1, Article 111, Law on Enterprises 2020.
A Share Purchase Agreement is an agreement between the seller and the buyer in which the seller will transfer their contributed capital to the buyer and, therefore establishes, changes, or terminates the rights and obligations arising from such share and contributed capital. The transaction must comply with the provisions of the Law on Enterprise 2020.
2. Key Clauses in the Share Purchase Agreement and Notes to the Parties
In a Share Purchase Agreement, the main clauses usually include:
2.1 Information about the parties
• Seller: Detailed information about the seller, including name, address, identity card/citizen ID/passport number, and other relevant information (Note: for the entity is an organization, more information about tax code, organization name, address, legal representative… is required)
• Buyer: Details of the buyer of shares are similar to the seller.
2.2 Group of terms on the transaction structure, including:
• Descriptive Terms of Purchase Structure: This clause aims to provide a detailed and clear description of the transaction structure, including key factors such as the number and type of shares, the purchase price, payment method and term, and the conditions for completing the transaction, ensure transparency and protect the interests of participants. Information about transferred shares includes: (1) Number of shares: determine the number of shares to be transferred; (2) Type of share: Determine the type of share (specify ordinary shares, preference shares, etc.), and so on.
• Purchase value: The purchase value is the amount of money that the buyer must give to the seller to own the shares. In the purchase value section, the parties should always specify payment methods, which may include cash, bank transfer, or other forms of payment.
• Benefits attached to shares, contributed capital to be purchased: This clause is intended to ensure that the buyer will enjoy the benefits related to the shares/contributed capital that they receive the transfer, the following basic rights: Right to dividends, right to participate in management and administration, the right to the subsequent Purchase of shares, the right to enjoy incentives and policies, the right to request information, interests related to assets and capital and other rights as prescribed by law.
• Prerequisites for Purchase: A Share Purchase Agreement may stipulate the following prerequisites: (1) The seller undertakes that it is the legal owner of the transferred shares and that these shares are not pledged, mortgaged, or any other legally binding; there are no disputes regarding the transferred shares. (2) The buyer undertakes that it has sufficient financial capacity to make payments for the transferred shares or other conditions agreed upon by the parties themselves.
• Conditions for completing the transaction.
2.3 The group of important legal provisions
• Terms of representations and warranties: (1) The Seller’s representations and warranties include that the Seller has legal ownership of the shares, accurate information provided, and the transfer complies with law. (2) Representations and warranties of the Buyer: financial capacity, the performance of obligations, the information provided accurately, and the receipt of the transfer in compliance with the provisions of law, etc.
• In addition, the Parties should stipulate the following provisions in the Share Purchase Agreement: Rights and obligations of the parties in the Purchase Agreement; Terms of information confidentiality; Terms of penalties and compensation; Termination clause and Dispute resolution clause and governing law.
2.4 Group of add-on clauses
These add-on clause aims to stipulate issues that support and ensure favorable conditions for the performance of the agreement, protect the interests of the parties, and create a clear legal basis for situations that may arise during the execution of the Share Purchase Agreement. These terms may include force majeure; methods of notification between the parties; modification and supplementation; language used and number of copies, etc.
Above is an article on “The main terms in the Share Purchase Agreement”. TNTP hopes this article will be helpful to our readers.
Sincerely.
