Buying or Selling a Company

What are the main legal documents for buying or selling a company?

The principal legal documents for a transaction for the sale and purchase of a private limited company can be split into the following categories:

• preliminary:
  • confidentiality agreement/NDA: principally for the benefit of the seller or target company in case the transaction does not go ahead, to protect the confidentiality of the information disclosed about the target company to the buyer for the buyer’s due diligence
  • letter of intent/heads of terms: non-binding transaction terms, setting out the main agreed terms, structure, timetable and process for the transaction and forming the basis on which the long form legal documents will be prepared
  • exclusivity agreement: principally for the benefit of the buyer, prohibiting the seller from negotiating and entering into a transaction with an alternative buyer
• share purchase agreement (SPA): the main legal document for a share purchase transaction, usually prepared by the buyer side, setting out:
  • sale and purchase: the mechanics for the sale and purchase of the target company shares and closing of the transaction
  • conditions: any conditions that need to be satisfied prior to closing
  • consideration: the consideration to be paid by the buyer, including the form of consideration (cash, shares or a combination), upfront consideration paid on closing, deferred consideration, earnout consideration and adjustment for the net assets of the target company on the business of completion accounts
  • warranties: warranties from the seller about the target company, its business, finances, assets, intellectual property, contracts, liabilities and tax history
  • indemnities: any specific indemnities identified during the due diligence and disclosure process and, usually, a tax indemnity relating to pre-closing tax liabilities and compliance
  • restrictive covenants: covenants prohibiting the seller from competing with the target company and soliciting the target company’s customers, suppliers and employees for a period following closing of the transaction
• disclosure letter: letter from the seller, together with an agreed bundle of disclosure documents, disclosing specific matters as exceptions to the warranties under the Share Purchase Agreement
• closing: ancillary closing documents for the transaction, including: 
  • new service agreements for individual sellers
  • transitional services to be supplied by a seller, especially where the target is being sold from a wider group of companies
  • target company, buyer and seller board resolutions
  • buyer or seller shareholder consents
  • repayment of shareholder or third party loans and releases of security
  • directors’ resignation letter
  • closing power of attorney for the shares being sold