Understanding Stock Purchase Agreements
A stock purchase agreement is a contract to transfer ownership of stocks from the seller to the purchaser. The key provisions of a stock purchase agreement have to do with the transaction itself, such as the date of the transaction, the number of stock certificates, and the price per share. In addition, the agreement should specify the name of the corporation whose stock is being sold in the transaction.
A stock purchase agreement also contains certain terms and conditions that outline the nature of the contractual agreement. At the close of the transaction, the seller will transfer and deliver all certificates representative of the stocks sold and the purchaser will pay the price specified in the agreement as consideration for the stocks being bought.
Key provisions of a stock purchase agreement
Date
The opening recital gives the date of the agreement as well as the name of the parties, the seller and purchaser, who are entering into the agreement.
Number and price of shares
This provision states the name of the corporation that issued the stock, the number of shares involved in the transaction, and the dollar value of each share of common stock.
Purchase and sale
At the end of the transaction, the seller conveys ownership of the certificates of stock to the purchaser. All certificates will be endorsed as needed for transfer and the seller will pay any transfer taxes.
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- What Are Representations and Warranties in a Contract?
- Important Provisions of Sales Contracts
Representations and warranties of the seller
Warrants the corporation as being legally able to issue the stock, and that the corporation is in good standing. This provision also validates that the seller owns the stock and, as such, is able to sell the stock to the purchaser.
Representations and warranties of seller and purchaser
All parties stipulate that there have been no omissions by the corporation, seller, or purchaser. Everything has been disclosed.
General provisions
These provisions include the entire agreement clause and a statement that the agreement complies with the governing laws of the location where the contract is being executed.
Witnesses
This is the section where witnesses sign the document. You must have witnesses for the agreement to be legally binding.
Amount and payment of purchase price
Sets the exact terms of when the purchaser will pay the consideration to the seller for the purchase of the stocks. This is often a percentage paid upon signing with the remainder paid when the contract is executed.
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