The PBL key 5 tips and traps of private share transfers for a purchaser
When business owners and potential buyers get together to try and reach agreement about a deal about a target business the first hurdle may well be what the structure of any deal will look like.
In most cases that comes down to working out whether there is going to be a sale of the actual business or the transfers of shares of the selling company to the buyer.
Both parties have to agree on the structure and seek to maximise the advantages that may be available.
Although many transactions involve the sale of the business it is not uncommon for agreement to be reached to sell the shares in the company.
But this comes with both benefits and risks.
So what are the key 5 tips and traps for a purchaser in a transfer of shares?
- Before even considering this structure make sure that you get good quality tax and financial advice about such a structure particularly in respect of Asset protection and income tax flexibility.
- If you are buying the shares undertake significant due diligence to test the promises being made by the seller . Such due diligence would include financial taxation compliance and legal matters and therefore you need to retain the A team composed of lawyers accountants and relevant compliance experts to ensure the due diligence checks are effective.
- Be careful , very careful if you are going to buy the shares in a company with any lengthy history as it may well come with significant adverse issues which may come back to haunt you and when it is too late to chase the departing shareholder.
- Make sure that you get access to all relevant documents and have them reviewed by your team before you sign up to any sale of share agreement. Such documents would include but not limited to all relevant company client and supplier contracts, leases , employment agreements financial and company records it and ip documentation.
- If in any doubt about the value of what you are going to get by purchasing the company rather than the business make sure you have included in the sale documents relevant warranties earn outs and security arrangements. The best way of avoiding waking up in the middle of the night and worrying about broken promises from a vendor is by putting into place the right checks and balances such as a strong retention arrangement and PPSA and property securities over the vendors personal assets at best and the company’s assets at worst.
If you want further information or advice about this topic or are thinking about buying or selling shares in a company then contact David or Reuben on 43053500