When it comes to purchasing and selling shares, one important document that both parties should consider is a share purchase agreement (SPA). An SPA is a legally binding agreement that outlines the terms and conditions of the transaction, including warranties. In this article, we will discuss warranties on share purchase agreements and how they can protect both the buyer and seller.
What are warranties?
Warranties are statements made by the seller in an SPA that assure the buyer that certain facts are true. These statements can relate to a variety of aspects, such as the shares being sold, the company’s financial position, legal compliance, and more.
Why are warranties important?
Warranties are important because they can protect both the buyer and seller. For the buyer, warranties provide a level of assurance that they are making a sound investment. If any of the warranties are breached, the buyer may be able to make a claim for damages. For the seller, warranties can limit their liability and potential legal exposure.
What are some common warranties?
Some common warranties found in SPAs include:
– The seller has the legal right to sell the shares
– The shares being sold are free of any encumbrances or third-party claims
– The company’s financial statements are accurate and complete
– The company has complied with all applicable laws and regulations
– The company’s assets are owned by the company and not subject to any liens or other claims
– The company has all necessary licenses and permits to operate its business
What happens if a warranty is breached?
If a warranty is breached, the buyer may be entitled to damages. The amount of damages will depend on the nature and extent of the breach. In some cases, the buyer may be entitled to rescind the transaction and receive a refund of the purchase price.
How can warranties be negotiated?
Warranties can be negotiated between the buyer and seller during the SPA negotiation process. The buyer may request additional warranties or ask for certain warranties to be strengthened. The seller may push back on certain warranties if they feel they are too broad or if they are unable to provide the assurances being requested.
Conclusion
Warranties are an important aspect of SPAs that both buyers and sellers should consider carefully. They provide a level of assurance for the buyer and limit potential legal exposure for the seller. If you are considering buying or selling shares, it is important to consult with legal professionals who can help you navigate the complex process of negotiating and drafting an SPA that works for your specific situation.