Share Purchase Agreement - Short Form

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Introduction

When a business becomes a company/corporation, or a private legal person as defined in the Civil Code of Quebec, the transfer of the business can be achieved either by the sale of its business (see series Y02 of the Business Precedents) or by the sale of at least a majority of the issued and outstanding voting shares of the latter to a new buyer.

Such block of shares can belong to one or more owners who agree to sell their shares for consideration. Although this transfer could theoretically be evidenced simply by endorsing the share certificates representing a majority of such registered holders in favour of the new owner in exchange for the agreed payment, the commercial practice, when the business sold is a private issuer, is usually the execution of a sale of shares agreement, which can be more or less detailed depending on the wishes of the parties.

The level of detail required in such a document depends on a combination of factors, the most important of which are without doubt the value of the transaction and the need of the buyer to protect itself from the many surprises such a purchase may cause.

This document is a short form version of the legal, financial and commercial framework of a sale of shares agreement (for a detailed version, see document Y04.550 of the Business Precedents).

Description

The Share Purchase Agreement (Short Form) is the legal instrument by which a person, known as the VENDOR, sells its shares to another person, called the PURCHASER for consideration.

Use

The decision to use the Share Purchase Agreement as a way to purchase a business rather than the Assets Purchase Agreement (see document Y02.500 of the Business Precedents) should not be taken lightly. Indeed, it is more advantageous for a purchaser to buy the assets of a business rather than its shares. The purchase of assets does not force the purchaser to assume any liability towards the creditors of the purchase business which, if they failed to protect their debt by creating a security, are now able to proceed by paulian action (s. 1631 and following CCQ) against the purchaser of the business.

In addition, for fiscal reasons, it can also be advantageous to purchase the assets of a business as it becomes possible to amortize the acquisition cost of the purchased assets, which cannot be done with shares. This argument can weigh very heavily in the mind of a purchaser who does not wish to bear such liabilities.

However, the transfer of assets may cause a variety of complications, the combination can become prohibitive for the parties to the transaction. Moreover, for fiscal reasons, the seller may wish to avail itself of certain exemptions which make the sale of shares far more interesting than the sale of assets.

When the selected mode of acquisition is the sale of shares, the parties must decide which contractual framework is needed to make such purchase. The choice depends on various factors, the most important being the amount of the purchase price and balance of the purchase price, the amount of knowledge of the buyer regarding the business and the needs of the latter to protect himself.

When the financial stakes are low or if the sale takes place between insiders or co-shareholders of the business, there is no reason not to use the short form version, otherwise it may be preferable to consider using detailed version (see document Y04.550 of the Business Precedents).

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