One of the primary methods of acquiring control of a private entity is through purchasing its entire share capital. As opposed to a selective asset purchase, the acquisition of a company’s shares brings with it ownership of all of the target company’s assets.
In a share acquisition, it is the priority of any business owner to minimise financial risk and grasp the complexities of the deal entered into. As such, it is vital to seek advice from experienced solicitors in order to secure the most favourable terms for a deal, and ensure all legal requirements for completion are met.
What are the benefits of a share acquisition?
Through purchasing a company’s share capital, the need to obtain third party consents for licenses and contracts to be assigned is removed, subject to any change of control clauses. It must be noted, however, that acquiring control of a company via share capital will also bring with it any liabilities that company has accrued.
It is, therefore, vital to carry out necessary due diligence on the target company’s assets and liabilities before progressing with a share capital purchase.
What is the process of private share acquisition?
Heads of Terms
The process of selling a company’s shares can begin with establishing preliminary Heads of Terms between the parent and target company. Similar to selective asset sale, the Terms will include the share purchase price subject to adjustment in the course of the transaction. While not usually a legally binding agreement, arrangements with regards confidentiality and exclusivity will be binding upon the parties.
Confidentiality agreements are especially important, as they permit the seller to have all information obtained by the parent company via due diligence returned to them. It is also common to include sellers’ guarantees to the buyer, most often regarding misrepresentations in the course of the transaction.
Sale and Purchase or Acquisition Agreement
The primary instrument for conducting a share sale is the Sale and Purchase or Acquisition Agreement. This instrument contains the array of agreed terms including price, guarantees, third party rights, tax liabilities and restrictive covenants as to the target business’ conduct prior to the closing of the deal. The Agreement will include warranties and indemnities with regards the share capital itself, as well as title to all assets passing with control of the company, including employees.
Where an acquisition takes place between a parent and target company in different countries, the Sale and Purchase Agreement will have to cover issues of jurisdiction and applicable law.
Closing the Deal
At closing, the target and parent company will have to exchange stock transfer forms and any relevant deeds. Tax matters, including stamp duty, will need to be settled.
Contact our Specialist Corporate and Commercial Solicitors Mayfair and throughout London
Lewis Nedas Law has a wide pool of clients, covering large corporations, SMEs, family owned-private businesses, start-ups and entrepreneurs, wishing to enter into share sale and acquisition agreements. In every case we strive to understand our client’s business operation and objectives, so we can assist at every step from due diligence and preliminary negotiation through to post-completion.