In an M&A transaction relating to a private company, how does a buyer (or the buyer’s advisers) verify that the seller has the legal and beneficial title to the shares which the seller is selling (“Sale Shares”) and get assurance that the Sale Shares are free from encumbrances?

Some of the steps which the buyer (or the buyer’s advisers) can take include:

1. Request for certified true copy of the latest and updated register of members of the target company (“Company”) from the company secretary.

The entry of the name of a person in the register of members as shareholder is prima facie evidence that legal title to the shares is vested in that person (section 101, Companies Act 2016).

2. Check share transfer forms and returns of allotment of shares to track the previous transfers and allotments of shares. It should be consistent with the information in the register of members.

3. Check share certificate(s) (if any). Under the Companies Act 2016, a share certificate is issued only on application by a shareholder or otherwise provided in the company’s constitution.

4. Check whether the Company has granted any share options. If yes, the Company should have maintained a register of options pursuant to section 129 of the Companies Act 2016.

5. Get the appropriate representations and warranties from the seller in the share sale and purchase agreement, including the following:

-The seller is the registered and beneficial owner of the Sale Shares.

-The Sale Shares are free from encumbrances and the seller has unrestricted rights to sell the Sale Shares to the buyer.

-The seller has not granted any option or right to any other party to acquire the Sale Shares or create any encumbrances over the Sale Shares.

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This post was first posted on Linkedin on 4 October 2021.