Legal documents in a business purchase

Legal documents when buying a company

There are a great deal of legal documents involved in a business purchase. It is important that the legal documents related to a business purchase are carefully drafted. Our M&A associates are well suited to help you construct these contracts. Our associate members (in this case the legal people) are specialists in the specific legal stages of an M&A process and we get them involved when legal documents need to be made. Below is an overview of some of the most important legal documents that are used when buying a company.

noaWe have made some examples of legal documents to download to get an impression about how the documents look;

• Example of a term sheet
• Example an index of an SPA
• Example of an LOI

NDA (non-disclosure agreement)

The first legal document that is most often signed is an NDA. This is a non-disclosure agreement to ensure all information exchanged between the parties stays confidential. This NDA is normally signed by a buyer and a seller but can also be signed by an adviser and a seller or buyer. CFIE has a standard NDA template we work with. Different names of documents we see to guarantee confidentiality are a CDA (confidentiality disclosure agreement) or just a CA (confidentiality agreement).

Engagement (mandate) letter

The engagement letter regulates the agreement between the client and the adviser. In this agreement, the fee structure (commitment and success fee) is described as well as other important items like exclusivity for the project. Once the mandate letter is signed, the project (business purchase) can be started.

The letter of intent (LOI) or term sheet

An LOI (letter of intent) is a legal document that expresses an intent of both a seller and buyer to work towards a transaction to pass on shares or assets of an existing business. An LOI can be legally binding or non-binding based upon what both parties agree. The LOI describes the main points of the planned business purchase with significant detail.

The LOI is normally put in place after various meetings have been held and detailed information has been exchanged but before the due diligence phase has started. The points of the LOI are later incorporated in the SPA (share purchase agreement) so it is important to have a clear and well-documented LOI. Download an example of an LOI to get an impression of the contents of this document.

In the case of a smaller M&A project, we most often put together a one-page document which is called a term sheet. A term sheet highlights the main items of a planned transaction so both parties have a mutual understanding of the framework for the contract. Download an example of a term sheet for a general impression.

SPA (share purchase agreement): the contract to buy a company

In the final step of purchasing a business, the SPA (share purchase agreement) will be drawn up by a legal party. The share purchase agreement is the contract that executes the sale of the shares legally. The SPA contains all relevant legal items in relation to a business purchase. The most important ones are the purchase of shares, the purchase price, withheld amount, taxes, and other conditions of the business sale. Further items that are included in an SPA are warranties, the liability of the sellers, and indemnities.

Corporate Finance in Europe can manage this process if desired. Signing the contract at the notary so it is legally binding is the first step in merging two companies that are more valuable together. Download an example of an index of an SPA to get an impression of this document.

Shareholder agreement: an agreement between the shareholders

A shareholder agreement is an agreement between the different shareholders. Shareholder agreements can vary between different countries. Hence, it is important to use the right support of legal M&A experts in the relevant country. A shareholder agreement normally regulates matters like the ownership and voting rights of the shares in the company. This can include lock-down provisions, restrictions on transferring shares, or granting security interests over shares and “tag-along” and “drag-along” rights. The objective of these agreements is to ensure that no unexpected issues with shares can happen or that shares can be sold if the main shareholder wants this.

European legal M&A support

We provide our M&A services in all European countries. We can help you with legal support when you want to acquire a company. Corporate Finance in Europe (CFIE) is highly qualified to help out with legal M&A advice. See more details on our associated partners to select your legal adviser or visit associated services for other services related to the M&A process.

Please contact us for a free-of-charge brainstorming session and feedback on your plans to buy a company and the legal parts involved in these processes. It might also be possible that you are interested in other aspects of buying a business. We suggest visiting the costs of a business purchase for details about all the costs of your project.