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Home / Business Contracts / Share Sale Agreement
What is a share sale agreement?

If you are buying or selling shares in a company (because for example the company owns and operates a business), you are going to need a share sale agreement. This agreement involves three parties, the seller, the purchaser and the company of the shares that are being transferred.

Here are some of the terms that should be included:

  • The parties to the agreement – that is, the seller, the purchaser and the company
  • The number and type of shares that are being sold
  • The agreed purchase price of the shares
  • How and when payment will be made for the shares
  • When ownership will transfer to the purchaser
  • Warranties by the seller to the purchase and also from the purchaser and the seller
  • confidentiality clause
  • An indemnity and release whereby once the sale has completed, neither party will have any financial obligations to the other Sometimes it’s appropriate to include a restraint of trade clause to stop the seller selling you their shares in a business and then setting up a competing business where the seller looks to solicit the clients of the company you have just bought into.
Purchaser’s Warranties

As mentioned above, the purchaser will generally offer the seller some warranties in the share sale agreement. For example, the purchaser assures the seller that they don’t have any existing agreements that would stop them from entering the share sale agreement. The purchaser would warrant that they have the power to buy the shares. Most often they will also agree to be bound by a shareholders agreement (if one is already in place – but note that this may be achieved another way- by having the purchaser sign a Deed of Accession, that is attached to the Shareholders Agreement, as part of the share sale transaction). They should also state that they are buying the shares for themselves and not on behalf of someone else.

Seller’s Warranties

A seller will also generally offer warranties in the share sale agreement. Firstly, the seller needs to have the power to sell the shares. If the seller is a company director, they should provide a warranty that company records are accurate and up-to-date. The seller generally also provides an assurance that they are not aware of the company being in breach or default of contracts and that the company is solvent (financially afloat and not about to go bust).

The share sale process

Additionally, at the time of the sale of the shares the seller will give the purchaser a signed transfer form stating that ownership of the shares has transferred to the purchaser. The company will cancel the seller’s share certificate and issue new share certificates to the purchaser and the company will also notify ASIC of the share transfer (within 28 days of the transaction date).

Share sale agreements can get complicated if they are part of a large transaction, such as selling out a major position (i.e. 25% or above) in a private company where that private company runs a large business. If you need a second set of eyes to look over things, feel free to give us a call!

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