Legal Documents Involved in the Sale or Purchase of a Business



Legal Documents For a Business Sale or Purchase

There can be a lot of different legal documents involved with the sale or purchase of a company. We will mention a few in just a few moments. Firstly you should know that it’s extremely important that these documents are well drafted by legal professionals. This decreases the risks of the deal going wrong or potential repercussions of the documents not being drafted properly. Our legal team at C.R.E.P. are highly qualified, experienced individuals that will protect your interests.
In this page the following will be discussed:

  • Non Disclosure Agreement or NDA
  • Engagement Letter or Mandate Letter
  • The Letter of Intent or LOI
  • Share Purchase Agreement or SPA
  • Shareholders agreement


Non-Disclosure Agreement or NDA

If you have read the process of how we sell a business you will know that this is one of the first legal documents signed. CREF has its own standard NDA (Non Disclosure Agreement) that we work with. This document ensures that all the information provided to a prospective buyer is kept confidential. When a buyer is a competitor it would be best to be careful with the type of information that is provided. The NDA also prevents your competition receiving sensitive information about your business via a third party.


Letter of Engagement or Mandate Letter

In this agreement important points such as the commitment fee, success fee as well as exclusivity for the project is described. Once this document is signed we get to work on the sale of your company/property. please read the process of selling your business/property to learn more about how we work.


Letter of intent or LOI

A letter of intent is exactly what it sounds like. It is the expressed intent from both the seller and the buyer to work toward a deal. This document is not always legally binding. Whether it is or isn’t legally binding depends on what the seller and the potential buyer agree to. Our advice is almost always is to make the LOI legally binding. This increases the commitment from the side of the buyer. However, in some business cultures it’s a general rule that an LOI should not be legally binding. Not every case is the same but in most cases the LOI is signed once both parties have had detailed discussions with each other.

At a later stage in the process of selling your business, the details held within the LOI are at times incorporated into the Share Purchase Agreement. Therefore one should never underestimate the importance of a LOI. Nor should one prolong the negotiation over the document (Time is Money after all). Once the LOI is signed we begin work on Due Diligence. There are other variants of the LOI such as the terms sheet. A term sheet is a simple document usually only consisting of a one page, and gives both parties a basic understanding of the future contracts framework. An Indication of Interest is also another variant of an LOI.


The Share Purchase Agreement or S.P.A.

Simply put, an S.P.A. is the contract that legally executes the sale of your company or shares. This document should always be drawn up by a legal professional with the responsibility usually falling on the buyer. This contract will contain all the relevant legal items in relation to the sale of the business. Such as the price of the business, the amount that would be withheld ,sale of the shares, warranties or indemnities as well as the liability of the seller. The last step with selling your company is the signing of the contract with a notary present.
It is essential to get legal counsel for such contracts. CREF has an experienced legal team to handle this for you.


The Shareholders Agreement

Simply put, it’s an agreement between the shareholders . A shareholder agreement describes the rights and obligations of the company as well as its existing shareholders and new investors. The terms may include the rights of investors to information, restrictions on the transfer of shares, and rights of first refusal. This document also would include items like what dividends should be passed to the shareholders. How and who can act on behalf of the shareholders. A Shareholders Agreement allows your company to run smoothly, and sets expectations for the shareholders when challenges arise.


For more information about legal documents please contact us.