Conditional Intent to Purchase Shares

NOTICE OF CONDITIONAL INTENT TO PURCHASE SHARES

Summary A Conditional Intention to Purchase Shares may be considered when a shareholder sells shares in the Company and the purchaser wants to conduct a due diligence before progressing with the sale. The Conditional Intent sets out the material provisions pertaining to the sale, provides for due diligence consents, and lays the foundation for the terms of the Sale of Shares Agreement.

Why do I need a Notice of Conditional Intent to buy Shares? A prospective purchaser wanting to buy shares in a Company, but who first wants to complete a due diligence before the sale of shares is finalised, may consider using this Notice of Conditional Intention to buy shares. A Conditional Intent sets out the terms of the due diligence to be conducted on the Company before the sale of a shareholder’s shares may be completed, and also provides for the requisite company consents to the due diligence.

Is this intended for a Close Corporation? Then view our Notice of Conditional Intention to Purchase Member’s Interest.                                

What does the agreement say? The template notice consists of: Parties; Definitions; Intent to Purchase; Purchase price; Conditional Sale; Due Diligence; Confidentiality; Costs

What does the contract look like? The standard notice of intent can be printed onto eight pages.

What do you need to do to use the Notice of Conditional Intention to buy Shares?

• Read the sample document to ensure that it suits your requirements. Make changes as required.
• Complete the relevant details, such as the Seller and Purchaser’s names, the name of the Company and the purchase price. Complete the Annexures, including the credit consents, and attach the draft Sale of Shares Agreement.
• Ensure the parties sign the agreement and each receive a copy.

Also viewed: Shareholders Agreement 

Also known as: Letter of intention to buy shares; Due diligence consents

An In-depth look at the Conditional Intent to Purchase Shares

Description of the Agreement:

The conditional intent to purchase shares is a legal document that outlines the preliminary agreement between a buyer and a seller regarding the potential sale and purchase of shares in a company. This agreement establishes the intent of both parties to proceed with the transaction subject to certain conditions the buyer and seller’s obligations and the completion of a due diligence process. It serves as a framework for further negotiations, closing date, and the eventual drafting of a comprehensive share purchase agreement.

A conditional intent to purchase shares agreement is a legal document that outlines the terms and conditions for the sale and purchase of shares in a company. This agreement governs the preliminary understanding between the buyer and the seller before proceeding with the transaction.

Such Representations: The agreement may require the parties to make certain representations about the accuracy and completeness of the information provided. These representations assure each party that the information exchanged is true and reliable.

Shareholders Agreement: The agreement may reference or incorporate a shareholders agreement, which is a separate contract that outlines the rights, obligations, and responsibilities of the shareholders of the company.

Third Party Rights: The agreement may address the rights of third parties and specify whether any third parties have a claim or interest in the shares being purchased.

Parties Agree: The agreement reflects the mutual agreement and understanding between the buyer and the seller regarding the terms and conditions of the share purchase transaction.

Company Incorporated: The agreement identifies the company involved in the transaction and confirms its legal status as an incorporated entity.

Sale and Purchase: The agreement defines the sale and purchase of the shares, including the quantity, type, and terms of the transaction.

Purchaser Wishes: The agreement acknowledges the purchaser’s intention and desire to acquire the shares of the company based on their specific requirements and preferences.

Legal Document: The conditional intent to purchase shares agreement is a legally binding document that sets out the terms and conditions of the transaction to which the buyer and seller agrees and any other such representations. It ensures that the rights and obligations of the parties are protected under applicable laws such as the Exchange Act and all amendments to the Exchange Act. This will also assist in dispute resolution.

Purchase Shares: The agreement specifically addresses the purchase of shares, stating the number of shares to be acquired and any conditions or contingencies associated with the purchase shares.

Seller’s Ability: The agreement may include provisions that confirm the seller’s ability and authority to sell the shares, ensuring they have the necessary rights and permissions and any such representations to transfer ownership.

New York Stock Exchange: If applicable, the agreement may make reference to the New York Stock Exchange (NYSE) as a relevant market or regulatory authority in connection with the share purchase transaction.

Limited Liability Company: The share purchase agreements may involve a limited liability company (LLC), which is a type of business structure where the owners’ personal liability is limited to their investment in the company.

Transfer Ownership: The agreement outlines the process and requirements for transferring ownership of the shares from the seller to the purchaser. This generally occurs once the shares are fully paid.

Date Hereof: The agreement typically includes a “date hereof” provision, which indicates the effective date of the agreement to purchase shares. The Date hereof clause can also set out a timeframe for an amount of months the purchaser has to pay the seller in full for the company’s shares and provides a specified date for full and final settlement.

Material breach: A material breach refers to a significant violation or failure to fulfill obligations in a legal agreement such as the share purchase agreements.

Parties to the Agreement:

The parties involved in the conditional intent to purchase shares or share purchase agreements are the buyer, who wishes to acquire the shares, and the seller, who owns the shares. The agreement may also involve the target company, whose shares are being considered for purchase. Any individual sellers or group companies associated with the shares may also be included as parties.

The agreement can also be concluded in the case of a group company purchase. Sometimes parties like a bank or group company that guarantees the seller’s obligations may also sign the SPA as the group company.

Uses of the Agreement:

The conditional intent to purchase shares o share purchase agreements serves multiple purposes, including:

1. Expressing the buyer’s initial interest in acquiring the shares and the seller’s willingness to consider the offer.
2. Outlining the terms and conditions that need to be satisfied for the transaction to proceed.
3. Providing a framework for conducting a due diligence process to evaluate the target company’s business, financials, and legal status.
4. Facilitating further negotiations and discussions between the buyer and seller.
5. Establishing a timeline for the transaction, including the closing date and any other important dates.

Benefits of the Agreement:

The conditional intent to purchase shares offers several benefits, such as:

1. Providing a preliminary agreement to demonstrate the buyer’s serious intent to proceed with the purchase.
2. Allowing the parties to define the key terms and conditions of the potential transaction early in the process.
3. Providing a basis for conducting due diligence to assess the target company’s assets, financials, and potential risks.
4. Setting a timeline for completing the transaction and clarifying the conditions precedent.
5. Allowing the parties to negotiate in good faith and work towards a mutually acceptable share purchase agreement.

Clauses and Other Elements:

The conditional intent to purchase shares may include various clauses and elements, such as:

1. Conditions precedent: Specifying the conditions that need to be fulfilled for the transaction to proceed, such as regulatory approvals or third-party consents.
2. Purchase price: Stating the proposed price at which the shares will be purchased, which may be subject to adjustment or further negotiation.
3. Due diligence process: Outlining the scope and timeline for conducting a thorough evaluation of the target company’s business, financials, and other relevant information.
4. Escrow account: Addressing the establishment of an escrow account to hold the purchase price or a portion of it until certain conditions are met.
5. Dispute resolution: Defining the method for resolving any disputes that may arise during the negotiation or execution of the share purchase agreement.
6. Representations and warranties: Outlining the representations and warranties expected from the seller regarding the shares and the target company.
7. Termination: Establishing the circumstances under which either party can terminate the conditional intent to purchase shares.

FAQs:

1. What is the purpose of a conditional intent to purchase shares? The purpose is to outline the initial agreement between a buyer and a seller regarding the potential purchase of shares in a company, subject to certain conditions and the completion of due diligence.
2. What role does the due diligence process play in the conditional intent to purchase shares? The due diligence process allows the buyer to evaluate the target company’s business, financials, and legal status to assess its suitability for acquisition and potential risks.
3. Can the purchase price be adjusted during the negotiation of the share purchase agreement? Yes, the purchase price stated in the conditional intent to purchase shares is often subject to adjustment or further negotiation as the transaction progresses.
4. What happens if the conditions precedent are not fulfilled? If the conditions precedent specified in the agreement are not met, either party may have the right to terminate the transaction without any further obligations.
5. What is the role of an escrow account in the conditional intent to purchase shares? Such account may be established to hold the purchase price or a portion of it until certain conditions are met, providing security for both parties involved.

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