A stock purchase agreement finalizes the terms and conditions of an agreement to sell and purchase a company’s shares. In contrast with an asset purchase agreement directed at purchasing and selling a company’s assets, a stock purchase agreement deals with shares.
Elements of A Stock Purchase Agreement Include:
- Interpretation section that sets forth the definitions of all major terms used in the body of the asset purchase agreement;
- Terms of the purchase and sell of a company’s stock, which lists the purchase price and purchase price adjustments, purchase price allocation, and dispute resolution mechanisms
- Parties’ representations and warranties. This lists all of the statements that buyer and seller are representing and signing off as true representations
- Employee benefits and terms on how to handle accrued bonuses once the transaction is finalized
- Indemnifications for costs that may arise once the business transaction is finalized resulting from pre-existing conditions
- Specification of special tax treatment the seller or buyer is entitled to
Sellers engaged in a stock purchase agreement ought to pay close attention to the purchase and sale section as well as the representations and warranties section of the agreement. The purchase and sale section need to match the terms stipulated on the letter of intent. Differences in terms are likely to have resulted from the buyer’s due diligence, and should have been formally negotiated before to the completion of the stock purchase agreement. The representations and warranties section should also be fully to ensure there are no statements believed to be untrue. Generally, there is potential for legal action if it is discovered that the representations made were untrue. Even once the transaction has been finalized, the purchase price may be adjusted and the buyer may be reimbursed for misrepresentations made.