What Is a Secondary Share Purchase Agreement

Think about the future when it comes to primary investments. Investors who understand the key issues of secondary acquisitions will be better able to negotiate and structure their primary investments in the business. Some of the issues we address here can be mitigated, if not fully anticipated, in the transaction documents for the primary investment. A new investor will have a clearer way to end their investment through a secondary sale if the company`s authoritative documents do not contain provisions that are (perhaps accidentally) “toxic” or “repugnant” to most secondary investors. If the Company does not cooperate (or has not yet been processed), the question arises as to whether the Seller has received the Company`s confidential information in the Seller`s possession (whether contained in a due diligence report or in the information received by the Seller as a shareholder or through its representatives on the Company`s board of directors), can transmit. The answer is not always easy. The Seller may be subject to overlapping and inconsistent restrictions – for example, through various confidentiality restrictions in the Shareholders` Agreement and the Seller`s Subscription Agreement with the Company. In addition, there may be additional restrictions on Seller`s ability to share information obtained through one of its representatives on the Company`s board of directors. In the case of secondary purchases of minority interests (as opposed to majority interests), it is unusual for a portion of the purchase price to be paid into the trust agreement, held by the investor, or otherwise subject to a deferred or instalment payment, for example. B by issuing a ticket from the seller. A corresponding point (discussed in section 9 below) is that a seller rarely assumes responsibility for more than the most basic warranties regarding his ownership of the shares and his ability to complete the sale. However, these structures can be adapted for secondary sale if circumstances so require.

When an escrow account is agreed, it is important that the terms of the escrow are formulated in a clear and thorough manner, including mechanisms for claims against the escrow account, disputes against such claims, and any agreement on the partial or gradual release of deposited funds. It is not uncommon for there to be short-term fiduciary arrangements that have been arbitrarily formulated with the obvious intention that the parties would settle the details in the future if a dispute arose – although this is unlikely to happen precisely when the parties act constructively to reach an agreement. An essential first step in any secondary purchase is to understand the nature and conditions of the securities to be sold (including, where applicable, liquidation preference and rights relating to dividends, voting, dilution and conversion), as well as the matrix of rights and obligations that an investor would assume if he became a shareholder. Often, a selling shareholder holds more than one class of shares with different rights and preferences, and diligence and negotiation may be required for the buyer to find an acceptable combination of securities at a reasonable price. With regard to the rights of the buyer, it is important to determine whether the selling shareholder has a certain status or denomination and whether that status or denomination can be attributed to the buyer. These points require a careful examination of the shareholders` agreement, as well as an understanding of the relevant corporate law framework, which varies from country to country. .