In essence, due diligence is the process by which the purchaser of the target shares examines the company`s activities, key people, documents and assets. The procedure is intended to draw the buyer`s attention to the risks that may be associated with the purchase of the target shares, but also to justify the value of the investment or acquisition price. A third, and just as important, value of due diligence is to determine all necessary consents before the shares can be transferred (i.e. banks, lenders or commercial contracts). Applications must be made to approved and issued share capital, including information on stock classes and the number of shares in each class, as well as on the names and addresses of all registered shareholders that indicate the number of shares held, whether favourable or not. The share purchase agreement is a legal document that defines the conditions under which the shares are transferred to a company. It distinguishes between the sale of all shares of a company and a partial sale. There are at least two parties to this agreement: a sales company holding the title rights to the shares and a buying company. As a general rule, shares are transferred for cash. However, it is also possible to pay equity with shares, in-kind contributions or media. It is common practice for the parties to the transaction to disclose, prior to the drafting of a share purchase agreement, all relevant elements related to the assets and liabilities of the target entity, known as due diligence. This clause is usually very short, but it protects the buyer`s interests, namely that he obtains good and good ownership of the shares he buys. A share purchase agreement is a very important document in every transaction of the M-A.
Although this document is signed at a relatively later stage of the transaction, there remains an important step and a potential risk that a transaction will not be completed. It is essential to have legal advisors who can understand and understand the position of both sides of the table. Choosing the right legal counsel for AM and granting the right mandate is an important task for any buyer and business owner. When someone sells their shares in a business, they often hope for a clean break. However, as some of the company`s liabilities – particularly the tax – are not disclosed until after the transaction, buyers must ensure that outgoing owners remain on the hook, and this is one of the main objectives of the main sales document, the share purchase contract. Since the buyer inherits a business, buying shares generally carries a much greater risk than buying assets. This justifies the inclusion of necessary safeguards to protect the buyer.