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Explanatory Notes
Chinese Agreement of Sale & Purchase of Shares in a Limited Company
This agreement is designed for use where the two parties are the only shareholders in a company and one of them wishes to sell its holding to the other. In such circumstances where, as our agreement contemplates, both parties are represented on the board of the company and both of them are parties to a shareholders' agreement, very little formality is required: both of them should already know about the company's business without the buyer having to rely on 'due diligence'. The main concern from the Buyer's point of view is to ensure that the shares which he is acquiring are beneficially owned by the Seller and that no third party has any undisclosed interest in those shares. The Buyer will also want to be sure that the sale is only completed when the Seller's directors resign from the board. Turning to the specific clauses: 1. SALE & PURCHASE OF SHARES This sets out the transaction and refers to a schedule which specifies the number of shares being transferred. 2. PRICE This contains the price payable by Buyer to Seller and makes it clear that payment will be due on completion. 3. WARRANTIES This deals with the point made above: the Seller warrants to the Buyer that he is the beneficial owner of the shares and that the same situation will apply at completion. In the interim period, Clause 3.3 makes it clear that the Seller will not do anything to prejudice the business of the Company. 4. COMPLETION This deals with the mechanics of the transaction - when the shares will be transferred and resignation letters from Seller's nominated directors will be handed over. Payment will also be made for the shares at this point (4.2). 5. SHAREHOLDERS' AGREEMENT If the Buyer and Seller are the two parties to a Shareholder's Agreement, this clause will be applicable and the effect will be for the Shareholders' Agreement to be terminated on completion.
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