A company share purchase or sale ('share purchase') is a transaction which involves a shareholder (or shareholders) (the ‘Seller’) selling some or all of their shares in the target company (the ‘Target’) to a buyer (the ‘Buyer’).
In a company structure, the shareholders own the company through their shareholdings. The company has a separate legal personality from its shareholders. As such, the company will be the owner of the underlying assets and rights of its business and be responsible for its liabilities.
In a share purchase transaction, the Seller and the Buyer may be any category of legal person (or persons) – incorporated or unincorporated. The Target will be a company. Usually, the Buyer will acquire the Target as a whole (including both the benefit of its assets and rights, and the burden of its liabilities and obligations) from the Seller by purchasing the Seller’s shares in the Company. Accordingly, except for a change in the identity of the business owners, the business will not usually change significantly as a direct result of a share purchase transaction.
The shares in the Target are transferred from the Seller to the Buyer by a stock transfer form, which is a simple document. The only assets that are actually sold in a typical share purchase transaction are the shares in the Target. There is no legal requirement for a formal share purchase agreement. However, except for the simplest of transactions, the Seller and Buyer will usually agree to document the change in share ownership by entering into a written share purchase agreement.
The terms of a share purchase agreement can vary considerably depending on factors such as the identity of the parties, the business sector and the nature and circumstances of the transaction. However, they are often lengthy documents dealing with such matters as price, payment terms, warranties, indemnities, limitations on liability, restrictive covenants, confidentiality and intellectual property.