Covid-19: Tough Topics – Retrenchments
May 13, 2020Shareholders Agreement vs Memorandum of Incorporation
June 23, 2020
A common, yet important, question that faces our users, and the business goers alike, is when selling or buying shares in a company, what agreement do I need?
Sale of Shares Agreement (also known as a Share Purchase Agreement)
A sale of shares agreement is a contract that sets out the terms and conditions applicable to the sale of certain shares in a company from one entity or person to another. It is important to understand that the shares being sold are ‘issued’ shares (or shares that have already been issued by the company). This agreement is regarded as an instrument of transfer in terms of the 2008 Companies Act.
This agreement usually contains clauses that relate to the purchase price of the shares, the rights and obligations of both parties, warranties, what happens in the event of a dispute as well as general contractual clauses.
Subscription Agreement
A subscription agreement differs from a sale of shares agreement in that the buyer is purchasing new shares directly from the company itself and not from another shareholder. This would involve the company issuing new shares to the purchaser subject to the terms and conditions contained in the agreement itself.
The company would need to ensure that it has enough ‘authorized’ shares available to issue to the subscriber in order to be compliant with its memorandum of incorporation.
Important Notes
While these agreements may seem similar in that they provide for the purchase of shares in respect of a company, the difference is critical in order to ensure that the transaction is housed in the correct form.
Another aspect that is very important to remember is that in most instances when a sale of shares has been concluded or a subscription for shares occurs, a (new) shareholders agreement will also need to be entered into between the old shareholder/s and the new one/s to regulate their relationship going forward.
We have various versions of these agreements available on our website for only R295 (inclusive of VAT), which have been drafted by experienced commercial attorneys.
