SHARE PURCHASE AGREEMENT: PURPOSE
Corporate Buy-out - Selling Shares - Forced to Sell - Buying out Shareholders - Buying into a Company
Contact our law firm at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
Business acquisitions tend to be exceedingly complex legal transactions. When the business acquisition entails the acquisition of the shares of the corporation that is conducting the business, the principal legal document is the share purchase agreement. The Share Purchase Agreement is a legally binding contract that outlines the terms and conditions for the sale and transfer of shares in the target corporation from its current shareholders (the vendor/seller) to the purchaser (the buyer).
One of the primary purposes of a share purchase agreement is to define precisely what is being purchased. Unlike an asset purchase, where specific assets and liabilities are selected, a share purchase involves acquiring the corporation as a whole - its assets, liabilities, contracts, employees, and ongoing obligations. The agreement therefore sets out the number and class of shares being sold, the purchase price, and the mechanics of payment. This level of specificity protects both parties by eliminating ambiguity about the scope of the transaction.
Another key function of the agreement is to allocate risk between the buyer and the seller. This is accomplished through detailed representations, warranties, and covenants. Representations and warranties provide assurances about the company’s financial condition, legal compliance, tax status, and operational integrity. Covenants outline the actions each party must take (or refrain from taking) before and after closing. These provisions are essential because they allow the buyer to rely on the seller’s disclosures and provide remedies if those disclosures prove inaccurate.
The share purchase agreement also establishes the procedural roadmap for completing the transaction. It outlines the closing conditions that must be satisfied, such as regulatory approvals, third‑party consents, or the completion of due diligence. By setting out these steps in advance, the agreement ensures that both parties understand their obligations and the sequence of events leading to closing. This reduces the risk of delays, misunderstandings, or disputes during the final stages of the transaction.
In addition, the agreement addresses post‑closing matters that are critical to a smooth transition of ownership. These may include indemnification provisions, non‑competition obligations, confidentiality requirements, and mechanisms for resolving disputes. Such provisions protect the buyer from unforeseen liabilities and help preserve the value of the business after the transfer. For the seller, the share purchase agreement provides clarity on the extent of their ongoing obligations and limit their exposure once the transaction is complete.
For knowledgeable and experienced legal representation in undertaking business acquisitions, or facilitating the sale of your current business, contact corporate business lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.
