What agreements are required for investment into a company?

Mergers and acquisitions
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When determining what agreements are required for investment into a company, consider the following:

1. What is the mode of investment?
For example, is the investment by way of acquisition or subscription of shares of the company?

2. What is the subject matter and purpose of the agreement?

3. Who should be parties to the agreement, which in turn, depend on who have rights and obligations under the agreement?

There is no need a memorandum of understanding in addition to a term sheet if what the parties are trying to achieve through the documents is to set out the key commercial terms of the investment.

Don’t complicate matters at the preliminary stage. Set out the structure of the transaction and key commercial terms in the preliminary documents (term sheet/ heads of agreement/ memorandum of understanding). Leave the legal details (e.g. indemnities, representations and warranties) to the later stage i.e. when drafting the definitive agreements.

I prefer not to have a share sale and purchase agreement and subscription agreement in the same agreement when an investor is seeking to acquire shares from existing shareholders as well as subscribing for shares of the company. Combining the agreements is doable but in my opinion, unnecessarily convolute the agreements.

The parties to the share sale and purchase agreement and subscription agreement are different. For sale and purchase of shares, the agreement is between seller and investor (buyer). For subscription of shares, the agreement is between company (issuer of shares) and investor (subscriber). The extent of representations and warranties and limitation or exclusion of liabilities may be different in both agreements.

Getting the right legal advice on structuring a corporate transaction at the outset will help to save time and costs.

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#mergersandacquisitions

This post was first posted on Linkedin on 28 September 2022.

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