Business Share Purchases
Purchasing shares in a limited company
Private limited companies which are registered with companies house are able to sell, gift or transfer company shares to other individuals. A company share represents a proportion of the business which you own. Having ownership of a share entitles you to a relative proportion of the company profits.
The process of buying or issuing shares, regardless of the company’s size, can be complicated and time-consuming. Rotheras Solicitors are trained in all the areas surrounding the sale and buying of shares.
With an experienced team of solicitors at your side, you will find the process easy, simple and quick. We ensure the process is communicated to you in simple terms so that you understand everything that is going on.
How do company shares work?
Shares represent a portion of the company. The number of shares that a company has will depend on how many shares were created when the company was registered with companies house. The minimum number of shares a company has is 1. There is no upper limit on the number of shares a company has.
Usually, companies will have an even number of shares to make it easier to divide among shareholders.
The best way to imagine how shares work is like a cake. Each slice of the cake is a piece of the whole cake. The cake itself can be divided up equally – halves, quarters, eighths. Or it can be cut up unequally – e.g. one third and two thirds.
Shares work in the same way. A company can be divided up and shared equally or unequally between different shareholders.
What needs to happen to buy shares?
To buy shares in a company either an existing shareholder has to give up or sell their shares, or the company will need to create new shares. However, the creation of new shares will impact the shares already in existence as the total always has to be 100%.
If you are buying the company through share purchase, it is likely that you will be buying all the existing shares of the company. This will grant you full ownership of the business, its assets and liabilities.
How much does it cost to buy shares?
The price of shares in a private company will depend on many factors such as previous performance and predicted future profit performance. It could also depend on the purpose of you buying shares. Is it because you are investing in the company, or potentially buying the company outright.
On the other hand, shares in a private company do not even need to be bought. Shares can be gifted to individuals by existing shareholders.
For example, you may want to give part ownership to a family member. Alternatively, you might look at gifting strong performing employees with some shares as a reward.
What is the process of buying shares?
The process may differ slightly depending on whether you are looking to invest in a company, take part ownership of a company or take full ownership of a company. However, the usual process included the following steps:
- The parties involved will often negotiate the basic terms of the deal which is sometimes set out in writing using “Heads of Agreement”. This is a document in which both parties agree;
- We will work with you to consider and plan for the future and carry out enquiries and searches where applicable;
- The seller will often require a non-disclosure agreement/confidentiality undertaking;
- The buyer will carry out Due Diligence to obtain various information relating to the company being purchased; if we are acting for the buyer we can help to prepare a detailed list of questions to send to the seller’s solicitor and keep a detailed record of the answers and documents received;
- The buyer’s solicitor will usually prepare a draft of the Share Purchase Agreement which will be forwarded to the seller’s solicitor for their review, which may undergo several revisions as the negotiation progresses;
A Disclosure Letter is drafted by the seller and negotiated between the seller and the buyer. This aims to bring any potential problems to the buyer’s attention by stating any matters that the seller knows of.
Why use Rotheras for Share Purchases?
Advice will be given to you on all legal aspects of share purchases.
Throughout the due diligence process, you will get direct help in making enquiries to gather information about the company you wish to purchase sales from.
By listening and working with your individual needs, we will provide you with tailored advice and help in negotiating and structuring the right deal for you.
During your share transaction, you will be kept updated on the progress.
We will liaise with your professional advisers to ensure that the documentation is drafted clearly, fully and accurately.
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Chambers UK, 2018
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