At the time of the share purchase agreement, the target company would have had to file all the tax returns and all the necessary information related to those returns. Even if the investor has only negotiated limited warranties, it must determine whether it needs (and, if so, what remedy) against the seller for a breach or whether the transaction is invalid (for example.B. if the parties have taken an aggressive approach to structuring around consent requirements). A breach of collateral is usually a very low risk once the transaction is complete, provided that all the requirements of the shareholders` agreement are met, but the risk cannot be completely eliminated. Although an escrow account is rare in secondary sales of minority stakes (as opposed to changes in control), it generally offers the safest form of recourse. If the seller is an ad hoc vehicle of a private equity fund or similar financial investor, a more common redress mechanism (although still subject to negotiation) is a form of contractual safety net of a solvent party (for example. B the fund itself). This can take the form of a letter of guarantee, a letter of patronage or even a letter of commitment of equity. Alternatively, the solvent company may become a direct party to the purchase contract and directly assume all indemnification obligations.
A target company that is the subject of a share purchase agreement cannot be insolvent, i.e. unable to pay its debts. While your lawyers are responsible for negotiating and drafting the agreement, you ultimately need to make sure that you know the scope of the safeguards and understand what will happen in the event of a breach. Another point that investors need to evaluate is the profile of the seller as a counterparty to the investor. An important aspect of the counterparty profile is that strategic and financial investors have often negotiated different types of rights and obligations in the shareholders` agreement and the new investor would intervene (unless further negotiations take place, as discussed in section 6 below). In addition, if the seller is a special purpose vehicle, as is often the case with financial investors, the new investor must ask for his financial resources and whether he should seek redress – and if so, in what form (e.B. parent guarantee) – in the event of a breach by the seller, as we will see below in section 9. Finally, an investor may consider pressuring the company to be a party to its purchase contract with the seller.
In some cases, the company`s involvement can delay the overall process, but in other cases – especially if the company`s consent is required for the transaction or if the buyer simultaneously makes a principal investment in the business – the buyer will find it useful to have the company`s contractual obligations. If the seller transfers only part of his share and retains the rest, it is important that the purchase contract regulates the assignment of the seller`s rights. The default position under the shareholders` agreement – which may be undesirable – may require the seller and the new investor to jointly exercise these rights. The target company`s accounts must provide a true overview of the target company`s business at the time of signing the share purchase agreement. Safeguards should rarely, if ever, address future issues. In many cases, it is appropriate for you to include an express disclaimer in the agreement that any predictions you make are not binding and should not result in a breach. While sellers require you to provide accurate information about the company`s past and present business, they can`t expect you to give firm guarantees of what will happen in the future. Business risk is something that comes with owning the shares. The warranties contained in the purchase agreement must be qualified by reference to the disclosure material. Because with a few exceptions, the buyer should not be able to assert a claim for breach of warranty in areas he already knows. .