Sale of Member’s Interest Agreement – in part, to a non-member

SALE OF MEMBERS INTEREST AGREEMENT

In part, to a non-member

Summary A Sale of Members’ Interest Agreement may be used when a Member sells some (but not all) of the interest that they own in a Close Corporation to a purchaser, where the purchaser is not an existing member of the Close Corporation. Ie. after the sale of member’s interest, the seller will remain a member in the business.

A comprehensive Sale of Members’ Interest Agreement includes reference to due diligence and warranties, amongst other detailed provisions. The Agreement caters for more than one member selling a portion of their member’s interest, if applicable.

Why do I need a Sale of Members’ Interest Agreement? A written Sale of Members’ Interest Contract sets out the terms of sale of an owner’s equity in a Close Corporation to another person. A number of issues need to be negotiated during a Close Corporation’s sale of equity, such as the purchase price, the due diligence process, confidentiality and warranties. These issues need to be included in the terms of the Sale of Members’ Interest contract to eliminate uncertainty and ensure that both the sellers and the purchaser understand their respective rights and obligations during the sale.

What does the agreement say? The template member’s interest sale agreement consists of: Parties; Definitions; Sale of member’s interest; Suspensive Conditions; Purchase price and payment; Delivery of documents; Due diligence; Warranties; Indemnities; Restraints; Breach; Confidentiality; Dispute Resolution; Pre-emptive rights; Notices; General.

Note: if the entity is a private company, you’ll need a Sale of Shares Agreement.

What does the contract look like? This sample agreement can be printed onto thirteen pages.

What do you need to do to use the agreement?

• Read the document to ensure that it suits your requirements, and make changes as required. The Agreement can be used for one or more members selling member’s interest, in which event clause 1 (Parties), clause 17 (Signatures) and Annexure 1 (Sale details) can be adjusted accordingly.
• Complete the relevant details, such as the details of the Seller/s and Purchaser, the name of the Close Corporation and the purchase price and terms in Annexure 1. Ensure that any blanks in the document have been completed.
• Ensure all the parties sign the agreement and receive a copy.
• The members should also look at reviewing their Members’ Agreement.

Also viewed:

• Sale of Member’s Interest Agreement – in total to a non-member
• Sale of Member’s Interest Agreement – in part to an existing member
• Sale of Member’s Interest Agreement – in total to an existing member

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