Privity of contract in drafting

When drafting an agreement, obligation should not be imposed on anyone who is not a party to the agreement.

For example, in a share sale and purchase agreement, obligation should not be imposed on a company secretary (who is not a party to the SPA) to provide directors’ resolution of a company.

This is because the company secretary is not contractually bound under the SPA.

The parties to the SPA would not have recourse under the SPA against the company secretary if the obligation is not fulfilled.

Instead of: “The company secretary of the Company shall provide a certified true copy of the directors’ resolution of the Company…”

the drafting should be something along this line:

“The Seller shall procure the company secretary of the Company to provide a certified true copy of the directors’ resolution of the Company…”

#malaysiancorporatelawyer

#contractdrafting

#mergersandacquisitions

This post was first posted on Linkedin on 11 October 2021.

Linkedin Post
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 …

Linkedin Post
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 sellers’ representations …

Linkedin Post
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 …