What does a stock purchase agreement cost? Let’s explore this question and review some general information about stock purchase agreements and when these contracts are used.
How Much Does a Stock Purchase Agreement Cost?
A stock purchase agreement is a legally binding contract between a company selling shares and an entity that purchases the shares. This agreement sometimes called an SPA, protects both the buyer and seller throughout the business transaction.
Stock purchase agreements can be very complicated contracts. They often contain information such as:
- Dividends
- Tax treatment
- The specific details of the transaction
A comprehensive and detailed agreement allows the company and the stock purchaser to understand their rights and responsibilities before finalizing the stock purchase.
A vital purchase agreement like a stock purchase agreement should always be drafted and reviewed by an experienced attorney. Missing or incorrect information could have devastating financial consequences for the company selling the shares or the investor purchasing the shares.
For this reason, many companies hire a corporate lawyer to draft their stock purchase agreement. A knowledgeable attorney will know what provisions and information the stock purchase agreement must be legally binding and enforceable.
Based on ContractsCounsel’s marketplace data, the average cost of a stock purchase agreement is $870.00.
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Is a Stock Purchase Agreement Necessary?
Stock purchase agreements are not required by law. However, the company or investor could take on a financial risk without this agreement. Some benefits of executing a stock purchase agreement include:
- Stock purchase agreements create a legally binding contract for the business transaction
- Businesses can use a stock purchase agreement to raise revenue for the company
- The seller and purchaser will have a clear outline of what the stock purchase entails before finalizing the transaction
- Stock purchase agreements explain important information like receiving dividends on investments and tax treatment
- A legally binding stock purchase agreement can resolve any dispute that may arise during the business deal
What is Included in a Stock Purchase Agreement?
Stock purchase agreements generally include several sections, which are called articles. Each article covers a different aspect of the agreement. Some typical articles you may find in a standard stock purchase agreement include:
Article 1: Definitions. The definition section will define the various terms used throughout the stock purchase agreement. The terms are organized in alphabetical order. Although some words may be standard contract legalese, some terms, like “seller’s knowledge,” are specific to the agreement. Therefore, understanding each term is vital to understanding the overall contact.
Article 2: Transaction Details. Transaction details will include the specific terms of the sale of the stock. This can be details about the sale price, number of shares being purchased, and other important details, including:
- Share certificates
- Legal options
- Escrow agreements
Article 3: Warranties and Representations. The selling party gave this section details assertions and assurances about the state of the business. This allows the buyer to assess how the business in which they are purchasing shares will perform in the future. In some agreements, the buyer is also required to make warranties and representations in the transaction.
Article 4: Covenants. A covenant agreement is common in all contracts and lays out specific acts that each party agrees to do or not do.
Article 5: Indemnification. Indemnification is another standard contract clause. This section will outline how each party will be compensated if the other party breaches the contract and causes a loss. It will also specify what liabilities each party may be responsible for.
Article 6: Termination. A stock purchase agreement should include a section about each party’s rights to terminate the agreement. Many contracts will outline specific reasons for terminating a contract and any termination penalties that may apply.
Article 7: General Provisions. The General Provisions article will always be the last article in a stock purchase agreement. This section will cover any miscellaneous provisions that haven’t been addressed in the rest of the agreement.
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Stock Purchase Agreement Drafting
It is recommended that a company hire an attorney to draft its stock purchase agreement. A lawyer will ensure that the agreement contains all necessary articles and provisions, making it legally binding.
Before beginning a contract draft, an attorney will usually meet with the company’s owners to go over the specifics of the business and how the stock purchase agreement should be structured.
Stock Purchase Agreement Review
Some companies choose to use a stock purchase agreement template. While a template may be suitable for some transactions, these boilerplate contracts usually need additional information to protect the buyer and seller fully.
Suppose a company chooses to use a template. In that case, hiring a lawyer to review the contract before using it to sell stocks is recommended. A lawyer will review the agreement and ensure that it includes all necessary information and adheres to local laws about stock purchases.
Stock Purchase Agreement Drafting Cost
Hiring a lawyer to draft a stock purchase agreement will cost a company money because it requires the time and expertise of a corporate lawyer to complete the task.
ContractsCounsel’s marketplace data shows the average stock purchase agreement drafting costs are $1090.00 across all states and industries.
Stock Purchase Agreement Review Cost
Even if a lawyer doesn’t have to draft the document, they will still charge for the time it takes to review and edit a stock purchase agreement.
ContractsCounsel’s marketplace data shows the average stock purchase agreement review costs is $620.00 across all states.
How Do Lawyers Charge for Stock Purchase Agreements?
Hourly Rates for Stock Purchase Agreements
When a lawyer uses an hourly rate fee structure, they will bill their client for the number of hours a case or project takes at a previously set and agreed upon rate. The client is informed of the hourly rate and must agree to this fee structure before the attorney begins work.
Hourly rate fee structures allow lawyers to ensure that they are fairly compensated for all the time they spent working on a particular project, like drafting or reviewing a stock purchase agreement.
ContractsCounsel’s marketplace data shows that the average hourly rate for a corporate lawyer range from $250 - $400 per hour.
Flat Fee Rates for Stock Purchase Agreements
Attorneys commonly use flat fee rate structures for document drafting and review services. This is because the attorney can easily estimate how long the set task will take to complete and, therefore, can come up with a fair flat fee rate to charge a client.
Clients tend to prefer the flat fee rate billing structure because they know exactly what they will be paying for an attorney’s legal services from the beginning.
ContractsCounsel’s marketplace data shows the average flat fee rate for a stock purchase agreement is $870.00.
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