What should be included in a business purchase contract
Contents of a contract of sale of companies
In the contract for the sale of a company strong> the owner of a business transfers his shares or shares to an acquirer, whether he is a natural person or legal. The most relevant circumstance in the company purchase and sale contract is the payment of a price in exchange for the shares or shares that are transferred.
This is an atypical, consensual and synallagmatic legal transaction. There is freedom of agreement for the parties to agree on the conditions of the transfer. We will review below the most relevant elements of the contract, as well as the circumstances that must be identified.
The seller is not the company being sold but the owner of its shares or participations. Special attention deserves the joint / private nature of the titles when the seller is a natural person when he is married. P>
If the seller is a natural person, it must be indicated if the ownership of these titles is private or community property. It will be privative for the owners married in community property when the acquisition of the titles is prior to the marriage or by hereditary succession.
If the shares or participations are of a community nature, the contract must identify both spouses, and the consent of both will be essential for the transmission to be carried out.
Description of the titles being sold
The shares and shares to be transferred are the object of the sale. The numbering of the same and the title of acquisition held by the seller must be identified. For the same reason, when there are several sellers, the shares belonging to each one must be identified.
The contract will clearly and precisely determine the economic contribution that the buyer is obliged to deliver in exchange for the award of the shares, as well as all the circumstances or conditions that may alter its amount.
Payment method and conditions
Complex price payment formulas are frequently agreed upon. Sometimes it may be due to a mere requirement of the buyer to make the payment in a deferred manner. Other times it is about the buyer eliminating risks or ensuring the achievement of certain objectives.
In this way, the payment of part of the price can be linked to the companies achieving certain results. The typical example is the achievement of the economic objectives of the current financial year. For the valuation of the price, the economic expectations of the company in the unfinished year are usually considered. So if the buyer agrees to pay a price confident in the achievement of expected results, it will be in his interest to condition part of the price to the achievement of those objectives. P>
The agreement of the payment method and price conditions will be directly linked to the result of the company’s analysis carried out in the due diligence. The buyer could condition part of the price to the extinction of contingencies noted in that study. Consider, for example, that the company has incurred in fiscal irregularities, in which case payment of part of the price could be withheld until the company’s responsibility with the Tax Treasury had expired. The same can happen with respect to contingencies of a labor or other nature.
Regulation of the so-called intermediate or interim period
It is frequent that a period of time is required from the agreement of the sales conditions until the public deed is formalized before a notary. The signing of the deed is usually identified as the “closing” of the operation and it is possible that certain commitments are required to be fulfilled between the signing of the contract and the closing.
This intermediate period is known as the intermediate period or interim period, and has its raison d’etre due to the steps that are necessary to undertake once the conditions of the operation have been agreed. Said procedures may be, among others: the search for financing by the buyer, approval of social agreements as agreed in the purchase contract, authorization by third parties, etc.
When an intermediate or interim period is required between the signing of the private contract and the closing, it is usual and even advisable to regulate the operational capacity of the seller. The buyer will demand that the seller refrain from committing the company in commercial operations or with new debts and encumbrances.
The company is a going concern, often during the interim period the seller will remain the manager of the company. For the buyer, it will be important to demand that the management remain in force, and that the buyer be promptly informed of the main circumstances that occur.
Representations and warranties
They are also identified by their English translation “Representations and Warranties”. These are demands on the part of the buyer, so that the seller expresses certain affirmations or manifestations. The veracity or fulfillment of the same can generate certain responsibilities of the seller or affect the conditions collected for the quantification and payment terms. These conditions are agreed in the guarantee clause, where the buyer will want to reflect the power to compensate himself in case of non-compliance or inaccuracies with respect to what is stated by the seller.
Applicable law and jurisdiction
It is recommended to establish the national law that should regulate the obligations and responsibilities derived from contractual commitments, as well as the court or arbitration body in charge of settling disputes that may arise between the parties for the interpretation of the clauses contained in the agreement, or to demand compliance with them.
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