When purchasing a business, there are generally two methods available – an asset purchase or a share purchase.
An asset purchase involves the purchase of some or all of the assets owned by an entity and used in carrying on the business of that entity.
The share purchase in a private company, however, involves the shares in the company being transferred from the seller to the purchaser.
A detailed Share Sale Agreement will need to be prepared that clearly sets out the terms of the share sale and should address the following issues:
- The number of shares being sold or purchased;
- The purchase price of the shares being sold or purchased;
- When and where completion of the sale of shares will take place;
- Continuity of business name;
- What will happen with employees? Generally, they would remain with the company, however, there may also be provisions for the redundancy of specific staff or specific benefits to be paid upon the change of control of the business;
- Tax issues or consequences;
- Warranties to be provided by the vendor of the shares to ensure the purchaser is not left with unresolved liabilities;
- A requirement for the vendor to hand over on completion to the purchaser, documents such as a signed share transfer form setting out the shares being transferred and the consideration or purchase price received;
- Property leases, if applicable, will need to be disclosed in the agreement and provisions for assignment; and
- How payment will be made of the purchase price – by a one-off payment on completion or instalments to be paid over time.
The proposed purchaser of the shares in a company should conduct a due diligence investigation of the company.
Depending on the company’s constitution and shareholder’s agreement, the board of directors of the company may be required to convene a board meeting and pass a resolution at the meeting for the company to enter into the sale share agreement.
The company’s Constitution (Memorandum and Articles of Association) may give other shareholders a right to buy shares that a shareholder proposes to transfer or a right of first refusal (which means that the shares cannot be transferred to a third party unless the same shares have first been offered to the existing shareholders, usually on a pro-rata basis) and if so, normally the shareholders are required to agree in writing, or pass a special/unanimous resolution to agree to the transfer of shares to a third party and to waive their first right of refusal.
After completion, the company is required to cancel the vendor’s existing share certificate and to issue new share certificates according to the new shareholdings. The company is also required to notify ASIC within 28 days of the share sale being effected.
Buying and selling shares in a company, whether it be small or large, can be a complex process. To ensure that the transfer of shares in a company is made properly and you are adequately protected, you should speak to an experienced business and commercial lawyer at Rockliffs Lawyers in Sydney.
Our staff understand that successful commercial property transactions are often dependent on the quality and speed of commercial negotiations, document preparation and execution by the relevant parties; and our team of experienced commercial lawyers will quickly assess and address these issues so that the transaction can be completed in a speedy and efficient manner.
Rockliffs Lawyers team of lawyers and consultants can recommend suitable advisers who will ensure that each transaction is completed in a tax effective and timely way.