Purchase of a Business – What Are Usual or Typical Conditions Precedent That a Purchaser Would Want in a Share Purchase Agreement



Acquiring shares in a company is a momentous decision that demands careful consideration and protection of the buyer’s interests. Within a share purchase agreement, conditions precedent play a pivotal role in safeguarding the purchaser’s investment. In this blog post, we’ll explore the vital conditions that purchasers typically seek in a share purchase agreement to ensure a seamless and secure acquisition process.

Key Conditions Precedent

Due Diligence: This comprehensive examination assesses the target company’s financial, legal, operational, and regulatory aspects, uncovering potential risks and liabilities. This would include a review of financial statements and tax returns.

Consents and Waivers: Assurance that all required consents, approvals, and waivers from third parties, such as lenders or business partners, are obtained, facilitating a seamless transfer of ownership.

Material Adverse Change: Buyers require confirmation that no significant adverse changes have occurred in the target company since the initial negotiations began, protecting them from unexpected challenges.

Litigation Assessment: Verifying the absence of pending lawsuits or legal disputes is crucial to gauge the company’s overall stability and reputation.

Employee Matters: Addressing employee-related issues, such as agreements, benefits, and severance obligations, ensures a smooth transition and fosters employee goodwill.

Clear Title to Shares: Purchasers must verify that the seller has clear and marketable title to the shares, free from any encumbrances or claims.

Financing Arrangements: If external financing is required, purchasers may include conditions to obtain necessary financing commitments, securing the funds for the acquisition.

Tax Compliance: Ensuring the target company is up-to-date on tax matters and has no outstanding liabilities safeguards the purchaser from future tax burdens. A holdback may be required to offset the risk of unpaid tax.

Corporate Governance: Compliance with corporate documents, bylaws, and constitutional requirements establishes a stable foundation for the acquisition.

Intellectual Property Rights: Confirming the ownership or proper licensing of essential intellectual property assets is crucial to maintaining business continuity.

Asset Investigations: whether the land, equipment and inventory owned by the target company are in a certain state or condition and are clear of any charges, liens or encumbrances.

Not what you’re looking for?  Read What Are Usual Or Typical Conditions Precedent That a Purchaser Would Want in an Asset Purchase Agreement? 

Or Key Differences Between an Asset Purchase and a Share Purchase in Business Acquisitions