Another topic that we are going to ignore for now is the fact that, when buying shares, the issuer can use the money paid for one or more specific purposes. This use can be something very specific, such as new equipment or debt repayment. The use could be more general, for example. B working capital. In both cases, the purpose of the invested capital is to improve, strengthen and/or expand the company whose shares are purchased. On the other hand, when shares are purchased by an existing shareholder, none of the capital used to acquire those shares is used for the constitution or improvement of the business because it goes into the seller`s pocket. A future question will address other uses by the issuer and assess the impact on the business and value of the business resulting from the different uses. However, for the time being, this issue must be set aside. Depending on the structure of your acquisition, the document will likely take the form of an Asset Purchase Agreement, Stock Purchase Agreement or Merger Agreement. It will be important for you to understand what the agreement says and how it works, but if you don`t have experience buying or selling businesses, getting such an understanding can be a big task. A quality SPA cannot make a bad business acquisition well. However, based on a well-negotiated roadmap and effective SD, an SPA is an essential risk reduction instrument for M&A. Experienced and knowledgeable lawyers are indispensable not only to create a term sheet and design a SPA (and complementary documents) that sufficiently meet the needs and objectives of the parties to an M&A transaction, but also to manage and coordinate all the moving parts of the business.
This article aims to provide non-lawyers and non-administrators with a general guide to better understand the complications that can occur at M&A. To prevent the seller and management of the target company from harming the target company, a buyer typically uses pre-closing covenants to prohibit the target company, its shareholders, directors, and management: the other scenario we address in this article is that of “transactions with related companies and individuals” for which the share purchase includes less than a majority stake. Share purchase contracts should contain important information, such as: share purchase contracts can be void if they violate the law on business or companies. A common example is that a share purchase agreement involves insider trading or other securities violations.