Heads of Agreement It is common for “heads of agreement” or “heads of terms” to be entered at an early stage in a share purchase or asset purchase transaction. The expressions mean much the same thing and refer to a non-binding agreement in principle. The heads usually set out the principal terms of the purchase and sale, in non-binding terms. […]
Sellers and Shares Issues may arise regarding the authority of the selling entity. In the usual way, it is necessary to ensure that authority for the sale comes from the appropriate entities. Minutes and resolution should be entered by the selling company authorising particular directors to execute the relevant transfers, indemnities etc. so as to bind the corporate seller and […]
Defining the Company in Sale The definition of the company in sale is critical. The share purchase agreement must define the shares in sale. Generally, there is a definition of the shares with reference to which the agreement takes effect. It may refer to a schedule setting out the precise shareholding concerned, the holders and the relevant shares. Where a […]
Need for Due Diligence The general principle in purchasing an asset is that the buyer must beware. The default position is that no implied warranties, covenants or conditions whatsoever apply to the purchase of shares in a company. Contractual provision or provision by way of a deed is necessary if legal assurance is required. For this reason, substantial warranties, and […]
Legal Due Diligence Process An agreement in principle or “memorandum of understanding / MOU” document may be entered once the commercial terms are agreed. It is usually legally binding only in relation to the mechanics of the due diligence process, confidentiality, and other collateral issues. The buyer will wish to undertake a legal, financial, taxation and property due diligence in […]
Tax Due Diligence A due diligence on the tax liabilities and position of the target company is essential in a share purchase. The target company may have hidden tax liabilities arising from the previous trading. It may be subject to contingent liabilities due to past transactions. Tax issues may arise from pre-sale steps taken by the seller. The tax due […]
Warranties There are no implied terms and conditions on the sale of shares so that in effect, all risk would lie with the buyer. In the absence of a specific misrepresentation, the buyer takes the company as is. There is no duty on the buyer by law to make any disclosures. For this reason, the seller of shares usually gives […]
Disclosure Letter The warranties in the share purchase agreement are usually drafted by the buyer’s legal advisors. They are usually in absolute or relatively unconditional terms and assume an ideal state of affairs. In some cases, they may have been the subject of negotiation in certain areas where the common standard warranties are inappropriate or inapplicable in the circumstances. Many […]
Deed of Tax Indemnity A Tax Deed is customarily entered in conjunction with the share purchase agreement. The Deed is usually an unconditional indemnity in respect of tax liabilities not provided for and factored into the purchase price. However, its precise terms need to be examined in order to confirm its effectiveness. It may be that some contingent liabilities which […]
Completion of the Sale Completion of the share purchase agreement in its simplest form involves the transfer of the shares in exchange for payment of the price. This usually involves the sale of the entire share capital held by one or more sellers in return for the payment of a once off price. There may, of course, be many variants […]
Tax on Sale of Shares The sale of shares by an individual is generally subject to capital gains tax. In broad terms, the gain is the difference between the acquisition cost and disposal price or value. An allowance for inflation is allowed for periods from 1975 to 2003 on the acquisition and other improvement costs. The sale of shares may […]
Consideration / Price The method of financing the purchase may depend on tax, financial and other factors relevant to the particular buyer. It some instances, the buyer may have a choice as to funding. In these instances, taxation and other considerations may make one form of finance preferable or more cost-efficient than another. A company may be purchased in cash. […]