The transaction of selling company shares can be extremely complicated and necessitates specialised legal expertise. If you are a shareholder contemplating the sale of company shares, either to another party or back to your own company, it is essential that you seek experienced legal advice. In this article, Advice On Selling Shares, we take a look at the process involved and the options available to you.
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What are the steps involved in selling shares?
The initial phase of the transaction will consist of the parties negotiating the fundamental provisions of the agreement. Occasionally, the parties will engage in negotiations directly; on other occasions, they will utilise the services of an agent or intermediary.
“Heads of Terms” are occasionally employed by the parties to formalise a fundamental agreement that they have reached in advance.
The document will provide comprehensive information regarding the shares being acquired, the purchase price, and any other significant terms that are presently known. For instance, it may specify whether deferred payments of the purchase price are included, whether the seller retains employment with the company as a consultant or employee, whether the price is contingent on asset value or company performance, or whether the final price is tied to an “earn out” mechanism.
Generally, it is specified that the Heads of Terms are not legally binding, except in cases where they pertain to confidentiality or contain “lock-out” provisions. Generally, the purpose of lock-out provisions is to prevent the vendor from negotiating with other potential buyers for a specified time period and to permit the buyer to conduct all necessary business investigations.
Heads of Terms have the benefit of outlining precisely what the parties consider to be the foundation of the agreement. Potential “deal breakers” can be identified and resolved prior to the incurrence of substantial legal fees. Consequently, appropriate preparation of the Heads of Terms is critical.
Consult the shareholders’ agreement and obtain a valuation
The shareholders’ agreement and/or articles of association of a company should outline the agreed-upon procedure for selling company shares. Prior to closing on a share offering, such provisions will require a thorough examination under the guidance of an accomplished corporate solicitor.
In the event that a shareholder wants to sell their shares, the remaining shareholders will typically be granted the right of first refusal to purchase said shares prior to their availability for sale external to the organisation. A requirement to grant the company first refusal on share repurchases may also exist, such as in the case of an employee departing from the organisation who is a participant in an employee ownership scheme.
Before agreeing to the sale, the purchaser must conduct due diligence on the company, including an examination of its revenues, expenses, and profits, critical contracts, assets, and liabilities. In essence, this pertains to determining the “health” of the enterprise as a whole.
Due to the inevitability that due diligence will require the disclosure of sensitive company information, this is typically accomplished on a privileged basis. During due diligence, the purchaser will typically be required to sign a non-disclosure agreement (NDA), which prohibits them from disclosing any information uncovered.
There are numerous methods for determining the value of shares in a private company. A shareholders’ agreement ought to incorporate a mutually agreed-upon mechanism to determine the value of company shares.
Possible methods for determining the worth of a business encompass analysing its revenues, profits, and assets. Although an internal assessment by a company’s accountants is possible, it is customary to procure an external valuation.
It may be decided, following the agreement on a valuation, to sell the shares at the full market value, a discounted market value, or a nominal rate (e.g., 1p per share). This will be contingent upon the sale’s purpose and additional factors.
The sales contract
Assigning company shares is governed by a legally binding contract known as a Share Purchase Agreement. This will encompass every aspect of the transaction, such as the agreed-upon price, the items that are included in the sale, and any obligations that the purchaser assumes.
The vendor will typically provide warranties in addition to a company share purchase agreement. These ensure that the buyer is not exposed to any undisclosed concerns regarding the company that may have an adverse effect on the buyer subsequent to the agreement of the sale.
How we can help
We have a proven track record of helping clients deal with the process involved in selling shares. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of selling shares. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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