What is Common Stock Purchase Agreement Drafting?
A common stock purchase agreement is a legal contract that outlines how a company can sell common stock to an investor. It has to outline the ownership transfer and other important aspects of the sale.
Read the rest of this article to explore key terms to include in a common stock purchase agreement, how to draft it, and how a qualified lawyer can assist you in the contract-drafting process.
What Key Terms Should You Include in a Common Stock Purchase Agreement?
The following core components usually appear in common stock purchase agreements:
- Transaction details. The shares being sold must be clearly stipulated. Include the number of shares and their purchase price.
- Closing. The date the closing will occur should be defined. This can be stated as “on or before” a specific date.
- Closing conditions. This specifies what conditions must be met before the sale can be finalized.
- Representations and warranties. These are guarantees the seller and buyer make to each other to avoid challenges during the process.
- Rights. There should be specific terms included that discuss the parties’ rights, such as rights of first refusal.
- Legal compliance. The agreement must be compliant with all the applicable laws and regulations.
- Dispute resolution. To prevent costly and time-consuming litigation, the agreement should specify the dispute-resolution method that will be used during conflict, such as arbitration or mediation.
What are Additional Tips for Drafting a Common Stock Purchase Agreement?
Once you have locked down some key terms in your agreement, you should include additional terms and information to provide details that will encourage a smoother transaction.
Provide Details About Shares
For clarity between parties, the agreement should detail the shares by including the number and class of shares being sold. It should also confirm that shares are free of any restrictions, such as liens, unless these are disclosed.
Explain Escrow Agent Duties
It’s common for an escrow agent to be included in a common stock purchase agreement, as they are a neutral third party who holds the funds or legal documents until transaction conditions are met.
Your agreement should specify the escrow agent’s duties, such as holding the investment funds in an attorney trust account and receiving copies of the agreement and other financial documents.
Consider Representations and Warranties
These are guarantees both parties make to each other to ensure the transaction runs smoothly. For example, the investor might guarantee that they are an accredited investor according to how this is defined under Regulation D in the Securities Act. Be specific and avoid vague representations and warranties that can create misleading information.
Mention Indemnification
Both parties in the agreement should indemnify each other for specific things. Specify these clearly and in detail so that there’s no confusion over what’s required and how parties can protect themselves.
Make the Document Legally Compliant
The agreement must be aligned with all relevant federal, state, local statute, and regulations that are applicable to the transaction. To protect both parties, it’s worth stating that to the best of their knowledge they have both complied with the laws.
Include Corporate Documents
It’s common for specific documents to be submitted at closing. Mention these documents so that all parties are aware of what’s required. Examples of documents required include bylaws, articles of incorporation, and consents of shareholders or board of directors.
Mention What Happens if The Deal Doesn’t Close
It’s always good practice to consider the worst-case scenario when drafting an agreement. In this case, your common stock purchase agreement should specify what will happen to the funds if the deal doesn’t close by the deadline included in it. For example, perhaps the escrow agent will return the purchase price to the purchasers.
How Does a Lawyer Help You With Common Stock Purchase Agreement Drafting?
Hiring a lawyer to draft your common stock purchase agreement is advisable to avoid missing information that could put you at risk. Here’s how a lawyer will help you during the contract-drafting process:
- A lawyer will draft an agreement that’s customized to your transaction, the parties involved, and your business goals.
- They’ll define all purchase terms so that there’s no confusion between parties.
- They’ll prepare all representations and warranties that protect both parties.
- They’ll follow all relevant laws so that you can minimize your risk of regulatory issues.
- They’ll address all closing and post-closing obligations for clarity and to prevent disputes.
- They’ll provide legal guidance throughout the transaction, such as by assisting you with negotiations.
Where to Find a Lawyer for Common Stock Purchase Agreement Drafting
If you require a qualified lawyer to draft your common stock purchase agreement, you should find one on an online legal platform such as ContractsCounsel.
ContractsCounsel is one of the largest online legal marketplaces that connects clients with a curated network of vetted lawyers on its platform. Instead of having to search for a lawyer who matches your requirements, the platform lets lawyers contact you after you’ve posted a request for contract drafting or review.
The process of posting a request for one of the lawyers on the platform to draft your common stock purchase agreement is easy. Here are the steps to follow online:
- Go to the ContractsCounsel marketplace.
- Post your project (or request) for free. Include a few details to help you find the most suitable lawyer.
- Wait to receive bids from lawyers. Instead of searching for a lawyer, you’ll receive multiple bids from lawyers directly on the platform who have the experience to help you.
- Review the lawyers’ profiles. To help you select the right lawyer, go through the lawyer data that’s conveniently on the platform, such as their location, client ratings for previous projects, expertise, and credentials.
- Connect with a lawyer you think is best suited to your requirements and hire them to draft your common stock purchase agreement for a flat fee.
