When two or more parties come together to invest in a business, it is important to have a legal document representing their interests. The two most popular legal documents used in this scenario are the Share Purchase Agreement and the Shareholder Agreement.
The Share Purchase Agreement is a legal document that outlines the sale of a company`s stock or shares. It sets out the terms of the sale, the price, conditions, and obligations of both parties, and the date on which the sale will take place. This document is typically used when a company is being sold outright, or when shares are being transferred from one owner to another.
On the other hand, the Shareholder Agreement is a legal document that outlines the relationship between the shareholders of a company. It sets out the shareholders` rights and obligations, the management of the company, how decisions are made, and how disputes are resolved. This document is typically used to regulate the relationship between shareholders in a company, especially in private companies.
The Share Purchase Agreement and the Shareholder Agreement are often used together. In fact, it is common for the Share Purchase Agreement to include a provision requiring the parties to enter into a Shareholder Agreement. This is because the Share Purchase Agreement only deals with the transaction between the buyer and the seller, while the Shareholder Agreement outlines the ongoing relationship between the shareholders.
In a Shareholder Agreement, the parties agree on how the company should be managed, what powers and responsibilities each shareholder has, and what decisions can be made by a majority or a supermajority of shareholders. The agreement also includes provisions for how shares can be sold and transferred, for how dividends will be paid, and for how disputes will be resolved.
In summary, the Share Purchase Agreement and Shareholder Agreement are both important legal documents that govern the relationship between shareholders in a company. While the Share Purchase Agreement deals with the initial transaction, the Shareholder Agreement outlines ongoing management and decision-making. Both agreements are crucial for ensuring transparency, protection, and clarity for all parties involved in the investment and growth of a business.