What is Stock Purchase Agreement Drafting?
A stock purchase agreement is a legal contract that establishes conditions for the purchase and selling of ownership shares in a company. It’s essentially a framework for how the ownership is transferred to parties.
If you need to draft a stock purchase agreement, there are some important considerations.
Read the rest of this article to explore stock purchase agreements in greater detail, what key terms they include, and how a qualified lawyer can help you with stock purchase agreement drafting.
What are Key Terms in a Stock Purchase Agreement?
A stock purchase agreement should lay out the purchase details and provide protections for both parties. It contains core components, such as the following:
- Parties. This includes a list of all parties, mentioning their legal names and addresses.
- Shares. This describes the number and type of shares that are going to be transferred.
- Purchase price. This states the price per share and transaction value.
- Closing conditions. This should include the specific requirements to be met prior to closing the deal.
- Representations and warranties. These are statements of facts made by both parties, such as that all financial disclosures are accurate.
What are Tips for Drafting a Stock Purchase Agreement?
If you need to draft a stock purchase agreement, there are some things to consider so that it’s clear and specific to avoid potential problems.
Be Accurate When Listing Parties
Although the section containing parties’ details seems straightforward, be mindful not to make any mistakes. Even minor inaccuracies can result in legal enforcement problems. Make sure you write the full legal names of parties as they appear on government identification.
Corporate entities will require additional details, such as their legal name, operating name, and full names and titles of officers who are authorized to sign on behalf of the corporation.
Include Definitions
A definitions or glossary section of words included in the stock purchase agreement should be included for clarity. This makes the document easy for all parties to understand, reducing the risk of misunderstandings.
Outline Payment Terms
You must provide details of how the buyer will pay the seller, including the amount that needs to be paid upon closing and if a deposit is required. Since payment can be a common reason for disputes in contracts, you want to make this as clear as possible.
Add Pre-Closing Covenants
Pre-closing covenants establish both parties’ roles and what they’re not allowed to do prior to closing the transaction. This serves to protect the deal’s value.
Some examples of common pre-closing covenants include the seller notifying the buyer of material changes. By comparison, buyers might need to maintain confidentiality and secure financing.
Note that these vary from covenants, which are duties that continue after the deal closes, such as non-compete clauses. These should also be clarified in the stock purchase agreement.
Include a “Hold Harmless” Clause
Otherwise known as an indemnification clause, this section of the stock purchase agreement compensates a party for loss or damages that are a result of the other party’s failure.
Remain Compliant
Since regulations regarding stock purchase agreements vary by jurisdiction, you need to consider what buyer and seller requirements need to be met prior to drafting the contract. These can include shareholder agreements, securities laws, tax regulations, and more.
There are also industry-specific rules to bear in mind. In some industries, you need to get government approval before you can engage in stock transfers. Understanding this will prevent challenges and invalid transfers.
Do You Need to Hire a Lawyer for Stock Purchase Agreement Drafting?
It’s advisable to work with a reputable lawyer to draft your stock purchase agreement. This will help you to avoid making certain errors that can invalidate the transfer. These include failure to consider transfer restrictions, dispute-resolution methods, securities law compliance, or indemnification clauses.
Here are some things a lawyer will do during the drafting of a stock purchase agreement:
- They’ll align the agreement with all corporate laws and securities regulations.
- They’ll draft accurate terms that are clear and specific to define rights and duties.
- They’ll protect you against disputes, such as with dispute-resolution clauses.
- They’ll conduct due diligence, such as by reviewing company records and ownership details to give investors the confidence to invest.
- They’ll reduce liability exposure, such as with indemnification clauses that protect you against hidden costs or claims.
- They’ll handle negotiations with the other party, such as related to payment and closing conditions.
- They’ll work with tax professionals to ensure the deal considers all tax obligations and prevent unexpected liabilities.
- They’ll safeguard sensitive company information.
- They’ll customize the stock purchase agreement so that it suits your specific company and transaction.
Where to Find a Lawyer for Stock Purchase Agreement Drafting
If you need to hire a lawyer to draft your stock purchase agreement, you might not know where to find one. Asking around for recommendations can be tiresome, which is why online legal networks can help you.
ContractsCounsel is one of the biggest online legal marketplaces that gives you access to a curated network of vetted lawyers. All lawyers have the expertise required for drafting and reviewing contracts, giving you peace of mind before you agree to a contract’s terms.
To request that a qualified lawyer on the ContractsCounsel platform drafts your agreement, follow these easy steps online.
1. Go to the ContractsCounsel marketplace and post your project for free.
2. Wait to receive lawyer bids. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles to choose the most suitable one. The platform provides extensive lawyer data, such as their location, client ratings, years of experience, field of expertise, and previous projects completed on the platform.
4. Connect with a lawyer who matches your legal requirements. Hire them to draft your stock purchase agreement.
If you’ve already drafted a stock purchase agreement, follow the above steps to request a review of it by a qualified, reputable lawyer. This will ensure you don’t make any mistakes that can cost, legally or financially.
