Stock Purchase Agreement Attorney
M&A Lawyer for Stock Purchase Agreements
A business acquisition is not to be taken lightly. Before signing a contract, you want to make sure that the company you want to buy is profitable and that any underlying liabilities are properly addressed in the stock purchase agreement. Our business attorneys will help you navigate the complexities of the business transaction by guiding your steps, conducting due diligence, and negotiating the terms for a seamless and safe transaction.
As a part of our mergers and acquisitions practice, Motive Business Law helps clients with both buying and selling stocks or membership interests in a business.
Trust Motiva Business Law to facilitate a smooth and successful transaction, providing you with the confidence and support you need to achieve your business goals.
Motiva Business Law Offers
- Stock Purchase Agreements
- Asset Purchase Agreements
- Due diligence
- Letter of Intent
- Guidance throughout mergers and acquisitions
What is a stock purchase agreement?
The agreement that governs the buying and selling of stocks in a company is called a stock purchase agreement (SPA). It is a legally binding contract that outlines the terms and conditions of the sale and purchase of stocks (of a corporation) or membership interests (of a limited liability company).
A stock purchase agreement facilitates the transfer of ownership, responsibilities, and liabilities from the seller to the buyer. In contrast to an asset purchase agreement (APA), a stock purchase and sale transaction involves the transfer of ownership in a company. When the ownership is transferred from seller to buyer, it also comes with the inherent liabilities of such ownership. Therefore, a seller generally prefers to sell stock and a buyer prefers to buy assets.
Key takeaways of Share Purchase Agreements
A stock purchase agreement is a legal document that transfers ownership of a company to another party. The most important features of an SPA are the following:
- Change in ownership: With a stock purchase agreement, you are acquiring a stake in the company. According to the number of shares you have acquired, you will own a proportionate percentage of the business.
- Assume assets and liabilities: In contrast to an asset purchase agreement, an SPA does not allow you to select specific assets from a business. By buying shares, you will assume all the assets and undisclosed liabilities of the business.
When do I need a stock purchase agreement?
Both parties to a transaction may need to sign a share purchase agreement in the following situations:
- When you want to buy an entire business
- When you want to buy shares or gain a percentage of ownership of a business
- When a company issues new shares to raise capital
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How do Share Purchase Agreements work?
If you plan to engage in a business acquisition and want to structure it as a stock sale, the following is the typical process you must follow:
- Strategic planning: Start conversations with the business owner and get general information about the company.
- Submit a letter of intent: To demonstrate that you are serious about the stock purchase, write an LOI with the assistance of a business attorney. A letter of intent is a non-enforceable document that will outline the proposed terms and conditions of the purchase, including price, structure of the deal, and due diligence period.
- Due diligence: Once de business owner agrees to proceed with the negotiation, the buyer will conduct due diligence, which is a thorough investigation of the target company’s financial, operational, and legal aspects to assess any potential risks and opportunities.
- Business valuation: A CPA or accountant will determine the best valuation method to determine the fair market value of the business.
- Obtain financing: If necessary, this step involves securing the funding required for the purchase, which may include obtaining loans, getting seller financing, or using personal funds.
- Drafting, negotiation, and execution of SPA: Based on the findings associated with due diligence and the business valuation, the attorney will draft a stock purchase agreement for the parties to negotiate. An M&A lawyer will ensure to add provisions that mitigate the risks encountered and representations and warranties that serve as a legal basis for potential indemnification claims.
- Closing: The transaction closes once both parties sign the SPA and required paperwork. Once the payment is done, the seller transfers to the buyer the share certificates that represent the stock in the company.
How to create a Securities Purchase Agreement
The following are some of the provisions you need to include in a Stock Purchase Agreement:
- Identifying parties: Include the name and contact information of the buyer and the selling entity
- Definitions: This section will define words and legal terms used throughout the SPA.
- Terms of the transaction: This section details the terms of the transaction such as the number and type of stock sold, the purchase price based on the business valuation, the price per share, and the date for the transaction. This part also spells out the documents, sucha as employment agreements, that must be transferred within the sale.
- Representations and warranties: This provision makes statements about the condition of the company, such as assurances about its good standing or the absence of claims against the company. Although both the seller and buyer provide reps and warranties, a stock purchase agreement mainly focuses on the seller’s.
- Covenants: These outline specific obligations or restrictions that the parties agree to adhere to in order to close the transaction or after the sale.
- Indemnification: Determines how parties will be compensated in the event they fail to comply with their contractual obligations or breach the contract’s reps and warranties or covenants.
- Dispute resolution: The contract determines a procedure in the event of a disagreement or issue between the parties.
- Termination: Specify under which circumstances the parties can withdraw from the deal
- Miscellaneous provisions: Includes the governing law under which the contract will be enforced.
Advantages and Disadvantages of a Share Sale
Pros
- Simpler purchase agreement: In general terms, a stock purchase is a more straightforward process than an asset sale because the SPA does not need to enumerate each item that will be included in the sale.
- Less contract complications: A stock buyer does not need to renegotiate terms of existing contracts or the authorization of third parties since the agreements in which the target company takes part are automatically assigned.
Cons
- Higher risks: With a stock sale, you risk assuming undisclosed liabilities, such as debts, contract disputes, or lawsuits.
- Lengthy due diligence: Since the risk is higher, the due diligence process should be more stringent and may take longer to complete.
- Taxes: Unlike in an asset purchase, where the buyer gets to step up the tax basis of the acquired assets, in a stock purchase, the buyer does not get this benefit. This can result in potential higher taxes upon the eventual sale of the stock.
Motiva business Law Attorneys for Smooth Transactions
Motiva Business Law M&A attorneys are dedicated to facilitating smooth business acquisitions for both buyers and sellers, regardless of whether the transaction involves stock or asset sales. For buyers, the attorneys provide comprehensive support by conducting thorough due diligence to assess the target company’s financial, operational, and legal aspects. This helps buyers identify potential risks and opportunities, enabling them to make informed decisions. Additionally, the attorneys assist buyers in structuring the acquisition, negotiating the terms of the purchase agreement, and ensuring compliance with all legal and regulatory requirements. By providing strategic advice and guidance throughout the process, Motiva Business Law M&A attorneys help buyers navigate complex transactions with confidence.
Schedule your consultation at (630) 517-5529 and have a personalized meeting with a Mergers and Acquisitions attorney.
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Stock Purchase FAQ
In an asset sale, the buyer purchases specific assets and liabilities of a business, such as equipment, inventory, customer lists, and contracts. In this type of sale, the buyer typically does not assume the seller’s liabilities.
On the other hand, in a stock sale, the buyer purchases the ownership (stock or shares) of the company itself. This means the buyer acquires all the assets and liabilities of the company, including any potential unknown or contingent liabilities.
Employment contracts are considered assets of the target company and most likely employees remain with the company after a stock purchase, and their contracts and benefits are typically assumed by the new owner.
The stock purchase itself may not directly impact the company’s stock price unless it signals a significant change in the company’s value or strategic direction.
The timeline varies, but it typically takes several weeks to months, involving negotiations, due diligence, and other legal processes.
SPAs are commonly used in B-to-B transactions, but individuals can also use them for private sales of company shares.
A subscription agreement is used for purchasing newly issued securities directly from the issuer, while a stock purchase agreement is used for buying existing shares from a current shareholder.
A shareholder agreement governs the relationship between the shareholders of a company, while a stock purchase agreement is specific to the purchase and sale of shares between parties.