SEBI (Security and Exchange Board of India) recently issued Operational Guidelines for its circular dated August 13th, 2021, on “Security and Covenant Monitoring using Distributed Ledger Technology”. This article examines the main highlights of the Operational Guidelines and their impact.Continue reading
DEFINITION- Sale Purchase Agreements (SPAs) are formal contracts signed between buyer/s and seller/s to effect sale and purchase of shares. They are meant to function like other formal contracts, albeit with the specific function of effecting sale and purchase of shares
PARTIES- These contracts can be between a single buyer and seller or between a single seller and multiple buyers. In case of the latter- i.e. multiple buyers, if the buyers are shell companies or companies created only for the purpose of effecting an SPA and lacking financial or administrative credibility, it should be ensured that Principals of such companies, i.e. heads of such companies are made Covenants/Guarantors to ensure payment or compensation in cases of fraud or non-payment.
FEATURES- The SPA should have the following legalities mentioned and clarified-
- Representations and warranties of the Buyer/s and Seller.
- Covenants- i.e. formal obligations binding on both the parties.
- Conditions precedent- obligations, permissions and permits to be taken
- Conditions subsequent- protection mechanisms for the seller in case the buyer/s default on payment.
- Dispute resolution and arbitration- Alternate Dispute Mechanisms to be used in cases of legal disputes arising.
- Jurisdiction and General clauses- The former explains which specific courts should be approached in cases of legal conflicts arising and Alternate Dispute Resolution mechanisms not working out.
- Notice- Where the parties were to be delivered notices in cases of legal disputes arising
- Closing mechanism- The process to be used after the shares have been exchanged- specifically exchange of documents and other legal formalities to be completed post sale in a timely and organized manner.
ADVANTAGES- These are the advantages that come with SPAs-
1- It helps in formalizing and executing sale of shares in an organized and legal manner
2- Since SPAs are detailed and cover all areas involved in the transaction, there is little to no scope for confusion.
3-It helps in creating a legal framework to protect the rights of sellers, in case they are duped
4- It helps authorities in keeping a track of such transactions and accordingly enforcing them
5- It helps companies keep track of shareholders and include them in their decision making process.
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