Between 1996 and 2017, the number of companies that publicly traded stocks changed drastically. The roughly 50% drop in the number of public U.S. companies during this period suggests that a significant amount of stock exchanges are taking place far away from Wall Street. And that leads us to stock purchase agreements.
With stock purchase agreements, you can sell shares of your company directly to buyers outside of the stock market. With the money you raise from these sales of company stock, you can fund new business initiatives without going public. And since you and your buyers sign legally binding agreements, you can protect your assets – and company – as you raise money. Below, learn more about these contracts and find a stock purchase agreement template.
What is a stock purchase agreement?
A stock purchase agreement is a two-party contract that dictates transactions around a company’s shares. Stock purchase agreements are common among small corporations; they provide capital while allowing you, the business owner, to retain a controlling interest. Usually, a stock purchase agreement will empower both the business owner and your company’s shareholders to sell stocks.
How does a stock purchase agreement work?
A stock purchase agreement formally transfers ownership of your company’s stocks between two parties. When shares of your company’s stocks exchange hands, your company’s ownership also changes. Someone who sells all of their stocks to another party no longer has any stake in your company. The new buyer, though, now has a stake in your company equal to what the seller previously had (or more, if the buyer already had stock in your company).
Stock purchase agreements differ from asset purchase agreements. Although both agreements have similar frameworks, the latter governs transactions of specific assets or liabilities rather than shares of company ownership.
For example, if you sell your equipment to another company, you may want to sign an asset purchase agreement, since no company ownership changes will occur. If you instead sold shares of your company to this other party, a stock purchase agreement would be in order. Notably, when buyers purchase shares of your company, they assume all assets and liabilities tied to your stocks even if you do not disclose them.
Who needs a stock purchase agreement?
Financial regulations state that, for any stock transaction, both parties must give written consent. If you’re preparing to sell stocks in your company, you’ll want to have a stock purchase agreement template readily available that you can then easily modify to reflect the terms of the sale and the buyer’s information.
What is included in a stock purchase agreement?
You typically see the following in a stock purchase agreement:
- Your company’s name
- The name and mailing address of the entity buying shares in your company’s stocks
- The par value (essentially the sale price) of the stocks being sold
- The number of stocks the buyer is purchasing
- The transaction’s date, time and location
- Seller and buyer warranties and representations
- Bonuses, benefits and other potential employee issues
- An indemnification clause to address unexpected costs
The above information is typically grouped into several articles that comprise your stock purchase agreement’s structure.
Stock purchase agreement template
Here is a template of a stock purchase agreement that you can copy and paste into a word processing program and save to your company files. This template is intended to serve as a guide only and does not constitute legal advice. Always consult with legal counsel before finalizing and legal documents.
This Stock Purchase Agreement (“Agreement”) details the terms and conditions of the contractual agreement between the below parties:
Buyer (“Buyer”): [Name, mailing address]
Seller (“Seller”): [Name, mailing address]
WHEREAS, Seller plans to sell [number] shares of [type] stock, or [number] percent of the outstanding shares belonging to [Your company name] (“Company”), a [State] corporation, and
WHEREAS, Buyer plans to purchase the stock and agrees to the terms and conditions outlined below.
THEREFORE, Buyer and Seller (individually, “Party”; together, “Parties”) agree as follows:
Seller will sell each individual stock to Buyer for $ [number]. Buyer will thereby pay a total of $ [number] to the buyer. [Optional inclusion: Within [number] days of signing this agreement, Buyer will place a deposit of $ [number] to Seller.]
IV. CLOSING DATE
Upon signing the Agreement, Seller shall commence the transfer of shares to Buyer. The closing of this transaction shall take place on or before [date] (“Closing Date”). On the Closing Date, Buyer shall send money to Seller via [specific money transfer method].
[Optional Clause] V. DUE DILIGENCE
Buyer requires a due diligence period in which Buyer will inspect the finances of Seller and Company. Buyer will have sole discretion over whether the shares are valid for the intended sale, with Buyer’s decision being final and binding for the Parties. Buyer shall deliver the verdict of their due diligence no later than [month and day], [year] at [time]. Should Buyer choose to terminate this Agreement after performing due diligence, all deposits made shall be returned to Buyer.
Seller represents, warrants and agrees to and with Buyer as follows on the Closing Date.
- The Company is a legally recognized corporation formed according to the laws of [State];
- The Company is in good legal standing in [State]; Seller and the Company are not aware of government or third-party proceedings, investigations or claims against the Company;
- Seller claims full ownership of the shares being sold; Seller holds share titles void of restrictions on transfer, encumbrances or other title defects;
- Seller is able, by state and federal law as well as Company bylaws, to enter into and carry out the Agreement, including the offer, sale and transfer of shares to Buyer and has taken all required steps to legally do so;
- Seller is not a party to any contract regarding the shares being sold;
- There are no restrictions, other than relevant securities laws, regarding the offer, sale and transfer of the shares.
Buyer and Seller agree to indemnify both Parties from and against all claims, liabilities, losses, damages, costs and expenses (including attorney’s fees) arising directly or indirectly from:
- Failure to execute the obligations established in this Agreement;
- Inaccuracies or breaches in representations and warranties established in this Agreement; Actions, suits, arbitration, litigation, investigations, proceedings, claims or liabilities that arise as a result of the sale of shares.
No modification will be made to this Agreement unless in writing and signed by the Parties.
IX. ENTIRE AGREEMENT
This agreement comprises the entire agreement of both Parties relating to the subject matter herein and supersedes all prior written and oral agreements, understandings, discussions and negotiations between the Parties.
This Agreement and the terms herein shall be construed and governed in accordance with the laws of the State of [State]. The Parties irrevocably submit to the jurisdiction of any and all federal and state courts located in [County], [State].
IN WITNESS WHEREOF, both Parties have agreed to this Stock Purchase Agreement electronically or in person by duly authorized officers as of the below day and year.