Singapore M&A Lawyer: Share Purchase Agreement, Common Clauses
- The Share Purchase Agreement is often entered into only after sufficient due diligence has been done that convinces the buyer go ahead and sign in order to buy the shares.
- Due diligence is the process where the buyer comprehensively (or rather, as comprehensively as it can) assesses the target's suitability for acquisition, often by a study of the target's key elements such as its assets, liabilities, income, expenses, commercial potential, whether stand alone or synergistic and "dis-synergistic" elements.
- We would advise that this is one of the critical stages of the acquisition process and we should be instructed well in advance to do proper due diligence for our client.
- Click here for an example where the buyer (who was not our client) failed to properly identify all the target's key elements before signing a binding agreement to acquire the target. The parties ended up suing each other in court.
- Acquisitions are not all alike; every Share Purchase Agreement is unique in its own way.
- Having said that, many such agreements have similar clauses.
- The date of the agreement and also the parties are usually stated near the start of the agreement.
- Here, short descriptions of the buyer and the seller are usually set out together with a summary of the background events leading up to the agreement.
- A list of definitions is quite common as this gives uniformity to the use of certain terms in the agreement.
- Here, the obligation for the seller to sell the shares and for the buyer to buy them are explicitly stated.
- Often, the seller will be described as selling the shares as full legal and beneficial owner, etc.
- Also, the buyer will usually be described as buying the shares free from all and any encumbrances, etc.
- This usually states what the buyer has to pay to the seller (and/or do for the seller).
- Sometimes, it may state any adjustment to be made to the price once final accounts are rendered. (This is because accounts are always delayed and can only be finalized some time after completion of the sale).
- It can also mention escrow account protocols, earn-outs procedures, etc.
- Any condition precedent to the sale can be set out here.
- Also, there can be mention that the buyer can waive certain conditions by issuing a written notice to the seller and vice versa.
- The completion date is usually explicitly stated or stated in such a way that it can be unambiguously determined.
- This clause will often also set out exactly what is to be exchanged at the point of completion, for example:
- resolutions, duly executed share transfer forms, deed of transfer of shares, power of attorney, waivers, consents, documentary evidence showing satisfaction of conditions precedents, etc.
- These will be a very important part of the agreement.
- They constitute the seller's statements that the buyer relied on to assess the value of the shares (or assets or business) it is buying.
- They may include certain buyer's statements as well.
- The buyer would try to get as comprehensive a set of representations and warranties from the seller as it can.
- The seller will try to limit what they have to say in order for the sale to go through.
- Apart from the Representations and Warranties themselves, buyer and seller will also negotiate intensively over the ambit and consequences of any that are made and this may result in a Materially Adverse Change Clause that can limit the seller's liability to a limited class of misrepresentation.
- This provides whether the seller is allowed to seek out other buyers pending the completion of the agreement and if so, under what conditions, if any.
- This clause will enable either party to waive any duty imposed under the agreement provided the notice of waiver is given in writing.
- Such waiver will usually be limited to the specific item being waived and shall not be construed as a general waiver.
- This clause will usually either allow full and free assignment or
- seek to restrict how the rights and obligations under the agreement can be assigned.
- This clause usually says that if any part of the agreement is invalid or illegal or ineffective, etc., that part will be severed from the agreement and the rest of the agreement will continue to be operative.
- This clause will explicitly allocate between the buyer and the seller the costs and expenses of preparing the agreement, putting into effect the agreement, etc.
- Often, this clause will state that the buyer and the seller shall bear their own costs and expenses.
- This clause seeks to ensure that the agreement is the entire agreement between the parties (so that neither suddenly points at a fax or letter and claim that additional terms have been included into the agreement).
- Typically, this clause will say that the agreement can only be varied in writing with the consent of both sides.
- This clause usually says that the agreement shall continue to be in force after completion.
- This binds the parties to such confidentiality as is desired.
- Usually, there are limitations to the confidentiality, for example, where one or both parties are required by law to make certain disclosures or it is expedient to protect the disclosing party's interests in legal proceedings, etc.
- This will state the addresses where each party can send notices to in order to give effective notice to the other side.
- This will state whether parties other than the buyer and the seller (hence called third party) are entitled to any rights under the agreement.
- This will state what the governing law of the agreement is.
- It will also state which country's courts have jurisdiction to try any dispute that may arise from the agreement.
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