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A share purchase agreement is a legal document that defines the terms and conditions under which the shares of the company are transferred or purchased. It is entered into by a buyer of shares and a holder of shares who determines the terms and conditions at which the shares shall be purchased. Often these agreements are to protect the interest of the parties. What one needs to understand is that it’s not the shares which are being sold but rather a part of the company. It distinguishes between a sale of all shares of a company and a partial sale and hence it becomes important in this agreement that the contains enough protection against false representations and solicit warranties as to the key aspects of the company.
1. Are all rights held by a shareholder vested in the purchaser on transfer of the shares?
While all rights are granted by the companies act 2013 transfer upon the sale of shares, however if the rights are granted pursuant to an agreement entered into between the company and the seller, the rights may not transfer as they might be personal in nature.
2. What all should be considered before entering into a share purchase agreement?
The following should be considered while purchasing shares:
a) Number of shares already issued by the company
b) Price of the shares
c) The representations and warranties being made by the seller
d) Indemnification provided on breach of contract
e) Restrictions on the seller to engage in business
3. Are there any restrictions on the pricing of the shares being sold?
Yes, restrictions on prices might be placed on the shares being sold depending on whether parties are persons resident outside India or if the shares are listed or not.
4. Can a subsidiary company purchase shares of its holding company?
Section 19 of the Companies Act 2013 specifically prohibits a subsidiary to purchase or hold shares of the company.
5. What is the use of Share Purchase Agreement?
The share purchase agreement is used when an organization or an individual is purchasing or selling the shares in the company with another person or organization.