Shares Purchase Agreement

TolsBols

Bit of commercial legal advice required. My father sadly passed away in November. He and my mother both had 50/50 shares in a company they ran together. A buyer is keen to purchase the company, so Mum needs to transfer over my Dad's and her own shares.

Solicitors are expensive, but Dad's accountant has advised that a sale can be agreed via a Shares Purchase Agreement (or Shares Sale Agreement). Our accountant has drafted a Word document outlining financial arrangements, assets and liabilities and share transfer. It designates a certain amount of money up-front, with a further sum if the company is still afloat in a year's time.

I see there are lots of templates online for Shares Purchase Agreements, but would the accountant's draft still be recognised as a legal document if signed by both my Mum and the buyer with the accountant bearing witness? Or is there a more standard legal pro forma for a Shares Purchase Agreement? If any commercial solicitors could PM me a template, it would be much appreciated!

Thanks all for any advice.

Savvy_Sue

There are some areas where NOT getting 'proper' advice is hugely risky, and this may be one of them. Does the accountant not have links to a recommended solicitor who could look over what has been drawn up, and - more importantly - consider any other issues which may be outside the accountant's expertise?

Or is the accountant confident that his document will do the job it needs to do? If he's confident, great, because you you then have 'proper' advice - the kind where you can sue the pants off them if they get it wrong ...

Aquamania

TolsBols wrote: »

Bit of commercial legal advice required. My father sadly passed away in November. He and my mother both had 50/50 shares in a company they ran together. A buyer is keen to purchase the company, so Mum needs to transfer over my Dad's and her own shares.

Solicitors are expensive, but Dad's accountant has advised that a sale can be agreed via a Shares Purchase Agreement (or Shares Sale Agreement). Our accountant has drafted a Word document outlining financial arrangements, assets and liabilities and share transfer. It designates a certain amount of money up-front, with a further sum if the company is still afloat in a year's time.

I see there are lots of templates online for Shares Purchase Agreements, but would the accountant's draft still be recognised as a legal document if signed by both my Mum and the buyer with the accountant bearing witness? Or is there a more standard legal pro forma for a Shares Purchase Agreement? If any commercial solicitors could PM me a template, it would be much appreciated!

Thanks all for any advice.

I'm sorry to hear about your father, but I have to agree with Savvy_Sue on this one.

From a legal point of view, any property that was in the sole name of your father will form part of his estate. That estate would need to be divided in accordance with the terms of his will.
If no will was ever created, then the laws of intestacy will apply.

Your mother can do what she wants with her shares, but she cannot do anything with those in the name of your late father.

Pennywise

Is your mother bothered whether she receives the balance of the monies in a years' time or not, i.e. is the amount large enough to worry?

If so, for heaven's sake, get the job done properly by a solicitor.

A poorly drafted legal document isn't worth the paper it's written on. A legal document drafted by an accountant is worth even less - their professional indemnity insurance almost certainly wouldn't cover any negligence claim either!

Accountants do tax and accounts, they're not trained to a high enough level to draft legal documents. Solicitors do legal stuff. Would you have trusted a share sale document to your plumber or garage mechanic or next door neighbour??

If the buyer has a decent solicitor, they'll be able to pick holes in a poorly drafted agreement to render it unenforceable!

TolsBols

Aquamania wrote: »

Your mother can do what she wants with her shares, but she cannot do anything with those in the name of your late father.

Dad had a will but because he only had one witness signature, apparently that renders it invalid. I've advised Mum she needs to apply for a Grant of Letter of Administration before she transfers Dad's shares.

Pennywise wrote: »

Is your mother bothered whether she receives the balance of the monies in a years' time or not, i.e. is the amount large enough to worry?

If so, for heaven's sake, get the job done properly by a solicitor.

We're not talking a huge amount of money - £8k in total. The document drafted by the accountant states £5k payable upon signing the agreement and the other £3k if the company's still afloat a year later. It also specifies that the buyer takes on all liabilities. The accountant will also be signing it as a witness.

At the very least, I want Mum to have that £5k which is why I shall insist on the buyer either transferring the sum at the signing or handing over a cheque.

Although I would much prefer to have instructed a solicitor, their fees may have eaten a large chunk out of that £8k.

Can anyone advise likely solicitor fees for overseeing a Shares Purchase Agreement? Or should I just download a template from simply-docs and ask we sign that instead?

Savvy_Sue

If I was a lone voice suggesting a solicitor, I'd let it ride, but I'm not, and others have set out very clearly why you need one.

TolsBols wrote: »

Although I would much prefer to have instructed a solicitor, their fees may have eaten a large chunk out of that £8k.

A few hundred, surely, no more. Quite possibly less. But, as one of the adverts say: peace of mind - priceless.

TolsBols wrote: »

Can anyone advise likely solicitor fees for overseeing a Shares Purchase Agreement?

No, partly because it would vary from one area to another. But if your accountant cannot recommend a solicitor (and I'd be very surprised if they did not have one on speed dial), phone round and ask for a few quotes. You need to ask for someone who specialises in companies, so not all partnerships will have one.

Actually even if your accountant CAN recommend someone, I'd still get at least one more quote, because it can be a very cosy arrangement.

TolsBols wrote: »

Or should I just download a template from simply-docs and ask we sign that instead?

Please don't. By all means download one and compare it with what the accountant has prepared, but do ask if any flaws in such an agreement would be covered by the accountants' professional indemnity insurance. If not, then you have not received 'proper' advice, the kind which allows you - as I said already - to sue the pants off them if it turns out to be wrong.

Now obviously we all hope you never HAVE to sue the pants off anyone, but our advice is technically worthless because you don't know who we are, and your accountant's document is worthless if you can't sue the pants off him if he's operating outside what he's technically covered for.

Please, if your mum NEEDS this money, you can't afford to get it wrong.

steampowered

Technically, I'm not sure you even need an agreement. The mechanism for transferring shares in an English company is a "stock transfer form", which is a standard form document published by HMRC which can't really be amended.

However you will want a separate agreement to state that the buyer has to pay £3k in a year's time if the company is solvent at that point. It is also helpful to have an entire agreement clause recording that you don't make any representations, promises or assurance about the company - to try and avoid any comeback for example if the company goes under and the buyer then claims you made promises about the company which turned out to be untrue.

With great respect to the opinions expressed by others, I'm going to go the other way. I think that given we are only talking about £8k it might not be worth using a solicitor.

Obviously using a solicitor would be a safer way of doing it but you'll have to decide whether it is worth paying the additional fee. If you do use a solicitor I doubt it will be worth asking for much advice from them beyond getting a very simple template.

The agreement prepared by your accountant is probably fine, and feel free to compare it with online templates (make sure they are English law templates - not US templates). Once it is signed it will be a contract like any other and will be legally binding.

A share purchase agreement is not usually executed as a deed and therefore does not actually require a witness (although people sometimes have a witness anyway).

Pennywise

steampowered wrote: »

However you will want a separate agreement to state that the buyer has to pay £3k in a year's time if the company is solvent at that point.

But the point is that the buyer can easily make sure the company he's bought isn't solvent in a years' time, i.e. by paying himself a large dividend or wages, or selling the trade to someone else (or himself) and dissolving the company, etc. So the "contract" isn't worth the paper it's written on unless it includes some form of warranty in case of future sale or asset stripping or restrictions on paying himself etc. Does the "contract" even define what it means by "solvent"? - different people will have different views on what solvent means - is it simply money in the bank, or reserves as per accounts, etc and if it's reserves, what safeguards are put in place in case of asset write downs of provisions for slow moving stocks or bad debts which would reduce reserves and push it into being "not solvent" whatever that means!!

martindow

Is it specified that the sale should be in two parts a year apart? It surely would be more straightforward to just sell it in one go.

TolsBols

Pennywise wrote: »

But the point is that the buyer can easily make sure the company he's bought isn't solvent in a years' time, i.e. by paying himself a large dividend or wages, or selling the trade to someone else (or himself) and dissolving the company, etc. So the "contract" isn't worth the paper it's written on unless it includes some form of warranty in case of future sale or asset stripping or restrictions on paying himself etc. Does the "contract" even define what it means by "solvent"?

No, the Agreement currently does not define solvency.

According to the accountant, if the buyer dissolved the company he would still have to pay for assets (which we costed at £14k) so it could cost him more than £3K – and for that reason it's unlikely he would dissolve the company deliberately.

In the agreement, the accountant has stated the remaining £3k "is conditional upon the company still being registered at Companies House (i.e. not dissolved)." My understanding from him is that by mentioning registration at Companies House, it makes it harder for the buyer to wriggle out of the additional payment.

Any further thoughts on that? Thanks for your concern by the way. It's comforting to know people I've never met before have our back during what is a nervy time!

steampowered

A statement that the extra £3,000 is due if the company remains registered at Companies House on a particular date sounds clear enough to me.

I suppose the buyer could in theory transfer the assets to a different company, and then deregister the company you sold, to avoid paying the £3,000. Although in reality that sounds like quite an extreme step just to avoid paying £3k.

You could consider including a statement along the lines of "the buyer will use reasonable endeavours to procure that the company continues trading until [date on which the £3k is due]" to mitigate that risk?

Obviously using a solicitor would be ideal but whether it is worth the fees to protect a £3k payment is a risk-benefit analysis that you'll have to decide.