Share Sales and Purchase Agreements: What should SMEs look out for?
A Share Sale and Purchase Agreement (SPA) is the main contract governing the transfer of shares in a company. In Hong Kong, the SPA sets out the terms of sale, the rights and obligations of the buyer and seller, and the protections needed to ensure a smooth ownership transfer.
Why an SPA Matters
The SPA is the backbone of most Hong Kong M&A documentation. It covers how much is paid, when shares are transferred, and what assurances the seller gives about the company’s condition. For SMEs, it is essential to ensure that the agreement balances both commercial expectations and legal compliance.
Key Features of a Hong Kong Share Purchase Agreement
1. Purchase Price and Payment Terms
- Details whether the price is fixed, subject to adjustment, or includes earn-out provisions.
- Clarifies payment timing and method.
2. Conditions Precedent
- Requirements that must be met before completion, such as regulatory approvals or third-party consents.
3. Representations and Warranties
- Statements by the seller on matters like financial accounts, ownership of shares, and compliance with laws.
- Provides the buyer with recourse if statements prove inaccurate.
4. Indemnities
- Protect the buyer against specific known risks, such as pending litigation or tax liabilities.
5. Completion and Post-Completion Obligations
- Outlines the process of share transfer, delivery of company records, and any transitional undertakings.
6. Restrictive Covenants
- May include non-compete or non-solicitation clauses to protect business value after the sale.
SME Considerations
- Always confirm share ownership and review the company’s Articles of Association before signing.
- Check whether shareholder approval or third-party consent is required for the transfer.
- Keep in mind stamp duty obligations, as share transfers in Hong Kong attract stamp duty payable by the buyer and seller.
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