A share sale agreement is a legal instrument that governs and validates the exchange of rights to shares between two entities. There are often instances when someone’s rights are violated throughout the purchasing or selling process. In this scenario, the subject can ask the court to void the share purchase/sale agreement. The core of the problem and the workflow will be thoroughly examined in this essay.
The ownership of firm shares or stocks may be transferred legally via a share sale agreement. In addition to other terms & conditions, it includes price details, the transaction date, and the no. of shares being sold. Share transfer, stock purchase, and share sale agreements are other names for the same document. Shares in a company may be bought or sold by a person, partnership, or other legal entity. For overseas businesses looking to partner with Dubai, there are a variety of possibilities available. Being present in the Middle East may provide significant commercial benefits.
What exactly is a share sale contract?
A share sale agreement is a legal pact that regulates the transfer of shares in a firm between two parties (a company and an investor). A share sale agreement safeguards both parties by outlining their respective rights and responsibilities, including:
- What happens if the business fails,
- The number of shares to be sold and their price,
- The amount of time allotted for due diligence before the deal closes, and
- the conditions under which either party may terminate the agreement.
A share sale agreement is crucial because it clearly outlines who receives what, preventing future disputes between businesses and investors.
You should know: Essential Clauses of Share Purchase & Assignment Agreements In UAE
Is a share sale contract necessary?
Having a share sale agreement that is precisely worded is essential whether you are buying or selling your shares.
Having your share sale agreement in writing often indicates that the Buyer and seller have fully agreed upon the terms of the transaction. Where warranties and indemnities are discussed at the negotiation stage, it gives clarity, predictability, and a source of protection.
The share sale contract serves as official written documentation of the transaction as a whole. Without one, things may get a bit sticky, mainly if there is a disagreement about the sale’s conditions.
You should know about: Share Transfer Agreement In UAE
What should you take into account while writing a share sale agreement?
The following are some of the essential clauses which must be considered while drafting the share sale agreement:
- Information about the shares
You will likely agree during the negotiating stage on the share selling price and the number of shares you will acquire. It is essential to ensure that these figures are accurate. Even though it appears straightforward, when the share specifics are documented precisely, misunderstandings and potential conflicts are more likely to be avoided.
- Title, possession, and risk
it is crucial to understand when title, property, and risk move from the seller to the Buyer to establish who will be held accountable for any legal violations that may occur. It is provided in the share sale agreement, which is crucial for all parties to comprehend. It is typical for the Buyer to take on all the obligations and risks associated with becoming a new shareholder in the firm. Due to this, it is advisable for purchasers to thoroughly investigate the business’s historical and present operations, earnings, and losses. It is also known as doing due diligence. While it may seem time-consuming, you run a significant risk if you don’t thoroughly investigate the firm you’re purchasing into as a buyer.
- Rights and Obligations
Before, during, and after the share sale, the seller and Buyer should be informed of their rights and obligations. For instance, the Buyer would expect the vendor to carefully manage and run the company while preserving its profitability and worth. The seller must provide all necessary paperwork upon completion to fully execute the deal.
Sensitive information will undoubtedly be exchanged between the parties throughout the share-selling process. A confidentiality contract guarantees the confidentiality of this information.
The success of any share transaction is often greatly dependent on the warranties provided by the seller to the Buyer.
The seller should be prepared to defend or compensate the Buyer to avoid conflicts over specific conditions. The indemnification provision in share sale contracts states that the seller will reimburse the Buyer for any loss or harm they may incur due to a third party. An indemnification provision should thus be in your agreement since it is practically a “make or break” circumstance for the share purchaser.
If you are buying a significant stake in a company, you would want the seller to avoid, among other things, opening a rival operation close by and start sourcing clients and suppliers. Your newly purchased firm will thrive without the extra worries of overseeing the seller if the seller is subject to restrictions on the kinds of businesses, the geographic region, and the term of the transaction.
Your share purchase agreement, or share sale contract, will help you put everything out on paper, offering both parties clarity and assurance.
The following should generally be in your share purchase agreement:
- Names of both the Buyer and the vendor,
- Shares being sold in terms of number,
- Shares’ market value,
- Conditions governing renunciations of authority, waivers, and other actions
Is a share sale agreement in the UAE need to be notarized?
Many people who wish to get into a contract wonder if they need to be notarized. Yes, a share purchase and assignment agreement will become legally binding and enforceable after notarizing. A notary public may attest to the parties’ agreement to the contract. The legal document’s notarization by a Dubai public notary will be robust evidence supporting the document’s validity.
You may be interested in reading: What is Service Level Agreement? Types Of SLA
How may Notary Public Dubai assist you?
Contact us at Notary Public Dubai right now if you want to learn more about share purchase and assignment agreements and their notarization in the UAE. We are a reputable company that takes pleasure in creating standard contracts for our clients across various sectors, pursuing multiple goals with their papers while adhering to the state’s legislation. We also help clients choose the appropriate contracts and agreements for their business dealings, allowing them to accomplish their goals more quickly and get the desired outcomes at the lowest possible cost. The contracts we prepare for you are created with your interests in mind, ensuring that all of the terms and conditions are favorable to you and completely compliant with UAE contract law.
For legal drafting services, don’t hesitate to contact us.
Hassan Humaid Al Suwaidi is a UAE Citizen and the founder of the firm HHS Lawyers. He has a vast experience of 20 years of dealing with high-value and complex notary requirements. Hassan has been involved in some of the largest legal settlements in the UAE and is commended for his ability to attain the most favourable outcomes for his clients.