When it comes to buying and selling shares, there are many aspects to consider before finalizing a deal. One important factor that often goes unnoticed is the inclusion of “condition subsequent” in a share purchase agreement. It is a crucial legal term that can have significant consequences for both the buyer and the seller.
In simple terms, a condition subsequent is a clause or provision in a contract that sets forth a condition that, if it occurs, will terminate the contract. In the context of a share purchase agreement, it means that the agreement will only be binding until a particular event or condition happens. Once the condition occurs, the agreement will be terminated, and the parties will be released from their obligations.
So why is it important to include a condition subsequent in a share purchase agreement? There are several reasons:
1. Protection for the Buyer
Including a condition subsequent in a share purchase agreement can provide some degree of protection for the buyer. For instance, if the buyer realizes that the company`s financial situation is not what they expected, they can terminate the agreement before the sale is finalized. This way, the buyer can avoid any potential loss or liability that may arise from the transaction.
2. Protection for the Seller
A condition subsequent can also protect the seller. For example, if the buyer breaches any of the conditions of the agreement, the seller can terminate the agreement and avoid any further liability or obligation. This way, the seller can safeguard their interests and minimize potential losses.
3. Flexibility
By including a condition subsequent in a share purchase agreement, both parties have some flexibility in negotiating the terms of the agreement. They can set specific conditions that must be met before the transaction can be completed, which may include obtaining regulatory approvals, financing, or due diligence. This way, the parties can ensure that all the necessary conditions are met before proceeding with the transaction.
Some common examples of conditions subsequent in share purchase agreements include:
– Receiving regulatory approvals for the transaction
– Obtaining financing for the purchase
– Conducting due diligence on the company
– Ensuring that all legal requirements are met
In conclusion, a condition subsequent is an important term that should be included in every share purchase agreement. It can provide protection for both the buyer and the seller and ensure that the transaction proceeds smoothly. However, it is important to ensure that the conditions are reasonable and effectively drafted to avoid any potential disputes or issues. A legal expert or professional can help ensure that all parties involved in the transaction understand the conditions and that the agreement is properly drafted.