A nonprofit publication of the Kentucky Center for Public Service Journalism

Share Purchase Agreement Guarantee


6. The seller is allowed to sell the shares to the buyer. For a share purchase transaction to take place, the target company must be created correctly and in good condition. This means that the company must be officially recognized by Companies House. Being “in good reputation” means that the company has continued to exist since its inception. A buyer`s starting point in a share purchase agreement is “caveat emptor,” i.e. “let the buyer watch.” The buyer will perform due diligence for the target company to find out as much as possible before the transaction is completed. The buyer does this by attracting information about the seller using warranties. If the information provided by the seller is insufficient, he may be threatened with a violation of the right to the guarantee. It can avoid doing so by providing appropriate information in a disclosure letter. The total issued share capital, i.e. the face value (at face value) of the shares held by the shareholders, and the allocated share capital, i.e. the new shares issued to existing shareholders or third parties.

A key document in transactional practice is the share purchase agreement (or SPA). This document contains provisions that govern, among other things, the terms of the transaction, the payment of the price and the financial accounts between the parties, their obligations and responsibilities. This is the main document negotiated between the parties to cover tax issues. In recent years, particularly for transactions with certain countries, PSPs will be accompanied by taxes. A tax deed is a separate document dealing with the tax issues agreed between the buyer and the seller. Where the share purchase agreement contains a compensation clause, the occurrence of a specific event leading to the seller`s liability provides a sufficient basis for the buyer`s claim. These events may include, for example, the decision to assess the amount of the underpaid tax and the obligation to pay the resulting tax, without the purchaser having to prove other circumstances of the event. Finally, I would like to say that advice on the presentation of a contract for the sale of assets or shares is essential to ensure a balanced agreement between the buyer and the seller and whether both parties are aware of their potential commitments. The guarantees and assurances provided by the seller are intended to ensure that the company has, in general, fulfilled its tax obligations in accordance with the rules in force. In theory, it may seem sufficient for the buyer to prove that the seller does not respect the general guarantee that the company has calculated and paid, as required by tax rules. It should be noted that, in the case of acquisitions, the purpose of the transaction (with rare exceptions) is the relevant participation as a whole; In other words, regardless of the percentage of the share capital or the number of shares that are the subject of the agreement, that percentage or number is considered a single and inseparable object. As obvious as it may seem, it is important to keep in mind that for such an inseparable participation, it is possible to split over time, that the participation that this money must acquire is not split and that it is transferred in its entirety at the same time.

The target company has not employed anyone since the date of the share purchase agreement.


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