Earn-Out: A Postponed Dispute?
An earn-out is often the solution when a buyer and seller cannot agree on price. The seller believes the business is worth more than what the buyer is willing to pay upfront. So, the parties resolve the issue by deferring the portion of the price they cannot agree on, with …
The Disclosure Letter: Why Founders Selling Their Companies Should Not Treat It as an Afterthought
When founders sell their companies, the scope of legal work usually focuses on the share sale and purchase agreement (SPA). The disclosure letter is sometimes treated as secondary to the SPA but it should not have been the case. The disclosure letter sets out the exceptions to the sellersโ representations …
Third-Party Consents in a Share Sale: What Sellers Should Check Before Negotiating
When a company is sold, due diligence is usually conducted by the buyer, not the seller. That means the consents required from regulators, other shareholders, financiers or IP licensors to complete the sale are often only discovered when the buyer’s lawyers identify them during legal due diligence. By then, the …
Why M&A Deals Fail
As an M&A lawyer, most of my time goes into the legal documents – drafting and negotiating agreements, representations, warranties, conditions precedent, etc. However, the deals I have seen delayed or aborted were not because of legal documents. A deal was aborted when geopolitical tension escalated while parties were going …
When a Seller is Paid in Shares, Instead of Cash
In an M&A transaction, a buyer which is also a company may offer to pay by issuing its own shares to the seller, instead of paying in cash. How is this different compared to a cash deal? The seller is not just selling. The seller is also “buying” into the …
Declining Sales: Must the Seller Tell the Buyer in an M&A Deal?
A seller signed a share sale and purchase agreement (SPA) to sell shares in two companies. Before completion of the SPA, he found out that sales to two of the companies’ major customers were declining. Should he inform the buyer, or not? He chose not to inform the buyer. In …
How Do You Deal with an Expired Licence in an M&A Deal?
In an M&A deal, the buyerโs lawyer discovered that one of the target company’s licences had expired. The seller’s lawyer tried to down risk the issue and said it could be renewed after completion. The buyer’s lawyer flagged the potential penalties – imprisonment and fines for each day of continuing …
Minority shareholders, is failure to secure a board seat always a loss?
I used to think board observer rights were simply a compromise for minority shareholders who do not have enough bargaining power to secure a board seat. I recently came across a perspective that changed my mind. For some investors with interests across various portfolio companies, board observer rights may actually …
Have Shares Actually Been Transferred?
This question comes up often in share transfers. The register of members, not the share certificate, is proof of legal ownership of shares. In fact, issuance of share certificate is not mandatory unless the companyโs constitution provides for it or a shareholder requests it. In a recent share transfer I …
Can a Company Pay the Stamp Duty on the Transfer of Its Own Shares?
In practice, I have seen requests for a target company to bear the stamp duty on the transfer of its own shares from the seller to the purchaser. It may seem commercially convenient, especially where the parties are friendly or related. However, this raises a question. ๐๐ด ๐ต๐ฉ๐ฆ ๐ค๐ฐ๐ฎ๐ฑ๐ข๐ฏ๐บ ๐ฆ๐ง๐ง๐ฆ๐ค๐ต๐ช๐ท๐ฆ๐ญ๐บ …