Generally, the process in sale of shares involves several key steps:-
- Valuation and Negotiation: The parties may engage a mutually agreed valuer, or each party may engage their own valuer to value the shares of the subject company. Parties may also begin the negotiation of terms of sale, including price and payment terms.
- Due Diligence: Concurrently with Step 1, the purchaser may conduct due diligence on the subject company to review the information and documents of the subject company, to assess, amongst others, the risks and liabilities of the subject company. Similarly, the vendor/seller may perform financial check to verify the source-of-funds and the purchaser’s financial ability.
- Pre-Contract: As negotiations progress, parties may commence drafting of a Letter of Intent or Term Sheet, to outline the main terms and conditions agreed-in-principle, though these documents are typically non-binding in nature, until a definitive agreement is concluded. Depending on the parties’ negotiation, an earnest deposit may be collected at this stage.
- Contract: Premised on the Letter of Intent or Term Sheet signed by both parties and subject to the satisfaction of due diligence report, a contract, containing the detailed terms and conditions, including the vendor’s representations and the purchaser’s covenants, will be prepared for parties’ execution. The contract may or may not contain conditions precedent, i.e. requirements to be fulfilled before a contract comes into force.
- Conditions Precedent (if any): After execution of the contract, parties work to fulfil the conditions precedent outlined in the contract within the conditional period stipulated in the contract. The contract usually contains provisions on the consequences if the conditions precedent is not fulfilled.
- Completion: Subject to all requirements and conditions under the contract being met, parties proceed to complete the share sale and purchase.
Throughout this process, it is important for parties to engage legal professionals to safeguard their respective interests.