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Simple English definitions for legal terms
stock purchase agreement
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A quick definition of stock purchase agreement:
A stock purchase agreement is a contract between a person selling stock in a company and a person buying that stock. The agreement includes information about the sale, like the price and how it will be paid, as well as promises from both the seller and buyer about the stock and the company. It also includes rules for what happens after the sale is complete, like whether the seller can start a competing business. Sometimes it's called a "share purchase agreement" or "SPA."
A more thorough explanation:
A stock purchase agreement is a legal contract between a seller and a buyer for the transfer of stock ownership in a corporation. The agreement outlines the terms and conditions of the sale, including the purchase price, payment terms, and closing requirements.
A typical stock purchase agreement includes the following sections:
- Recitals: A description of the background of the transaction.
- Definitions: A list of definitions for key terms used in the agreement.
- Sale Terms: The terms and conditions of the sale, including the purchase price and payment terms.
- Closing Requirements: The conditions that must be met before the sale can be completed, such as obtaining government approval.
- Representations and Warranties: Statements made by the seller and buyer regarding their authority to enter into the agreement and the legal and financial status of the corporation.
- Post-Closing Obligations: Any obligations that the parties have after the sale is completed, such as non-compete or non-solicitation clauses.
- Indemnification: The rules for compensation in case of losses or damages resulting from the sale.
- Termination: The conditions under which the agreement can be terminated.
- Miscellaneous: Other clauses, such as applicable law and jurisdiction, arbitration, and interpretation rules.
A stock purchase agreement may also be referred to as a "share purchase agreement" or "SPA."
John wants to sell his shares in XYZ Corporation to Jane. They agree on a purchase price of $10,000 and sign a stock purchase agreement. The agreement outlines the terms of the sale, including the payment schedule and closing requirements. It also includes representations and warranties from both parties regarding the legal and financial status of the corporation. After the sale is completed, John agrees not to compete with XYZ Corporation for a period of two years.
This example illustrates how a stock purchase agreement is used to formalize the sale of stock ownership in a corporation. The agreement protects both parties by outlining the terms and conditions of the sale and any post-closing obligations.