Buying or selling shares in a company
You may be thinking about buying shares in a company but are unsure about how to proceed? This is a short introduction intended to help first time investors.
Initial stages of Buying Shares
The first stage of purchasing shares is negotiating the price. This can be done between both parties directly, or through a broker. Once this has been settled a Heads of Terms are issued which stipulates the basic terms that have been agreed and how the deal will proceed. The Heads of Terms document is not usually legally binding but it does help to lay out the framework of the deal, clarifying the agreed terms for both parties.
Although some kind of due diligence will have been performed before the buyer has even approached the company they wish to buy shares in, at this stage the buyer’s solicitors will prepare enquiries regarding the company’s assets, tax, employees, etc. This enquiries will then be answered by the seller’s solicitors. This is often only the start of a process as the initial set of answers will probably instigate a new set of enquiries. This will then lead on to the Share Purchase Agreement – which may, once again, involve more queries being raised in relation to the agreed clauses of the agreement until both parties have the clarity they want for the terms of the agreement.
Moving towards completion
Warranties will then be issued by the seller. The warranties are usually a detailed list regarding the state of affairs of the company. These statements are often challenged by the buyer’s solicitors and can be amended for detail and clarification.
After this a Disclosure Letter is issued. The main purpose if this letter is to draw the buyer’s attention to any potential issues in relation to the company before the sale is completed.
Completion of Business Shares
Once the Share Purchase Agreement has been finalised and signed the sale can then be completed by the buyer’s solicitors. After the completion, if the purchaser is buying a majority share in a company, the board members will usually resign and a new board will be elected. The companies records and accounts will also be handed over to the new owner.