In essence, due diligence is the process in which the target stock buyer reviews the company`s activities, key people, documentation and assets. The process aims to draw the buyer`s attention to the inherent risks that may accompany the purchase of the target shares, but also to justify the value of the investment or purchase price. A third, equally important value of due diligence is to identify any consents needed to transfer the shares (e.g. B banks, lessors or commercial contracts). If the guarantees are beneficial, the party it gives must be able to support them. When a buyer buys shares, all the guarantees given by the seller are given by him personally. In addition to questions about the reason for the sale of the shares and possible prior sale efforts, it is worth asking fundamental questions about the legal books and the organizational legal structure of the company. In some situations, it may be necessary to make the conclusion of the share purchase agreement subject to certain issues, such as. B obtaining tax decommitments or administrative authorisation, so that, in that case, normally suspensive conditions would be included in the contract.
When establishing a share purchase agreement, it is important to provide details about the shares to be sold, for example. B the nature of the actions. Common, Preferred, Voting, and Non-Voting are terms that can be used to describe actions. All consents that shareholders must obtain before being completed, all consents that the company must obtain before being finalized. Any consents that the company must obtain, or authorizations or licenses that expire as a result of a change in ownership of the company. All agreements in which the company participates that contain provisions for change of control. All brokerage and/or finder agreements. The share purchase agreement should define very clearly what is being sold, to whom and for how much, as well as all other obligations and commitments. A shareholder has the prima facie right to transfer his shares whenever and to whomever he wants. This freedom may, however, be considerably restricted by the provisions contained in the articles. Two common forms of restriction found in the articles of association of private companies are: (a) the provisions that the board of directors should have general or limited power to refuse registration of transfers at its discretion; and (b) reference clauses which are provisions requiring a member to offer its shares first to other specific persons such as directors or other members.
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