Stock Purchase Agreement

A stock purchase agreement is an agreement that finalizes all terms and conditions related to the purchase and sale of shares in a corporation. It is different from an Asset Purchase Agreement (“APA”) where the assets (not the shares) of a corporation are being bought and sold. There are two commons ways to acquire a corporation, with the stock purchase being one way and the asset purchase being the other way. A stock purchase agreement contains all of the terms of the purchase and sale of the equity, including any necessary representations and warranties by the parties. One example of a warranty of the seller of the stock is that the stock is not encumbered, meaning that no third parties have any claims to the stock. In a typical acquisition involving a stock purchase, other documents that usually are part of the transaction include consents by the seller shareholders, assignments of any necessary related property to the buyer, and necessary filings with any state agencies to update their records as to the transition in ownership. In general acquisition terms, buyers of corporations don’t like to purchase the stock of a corporation if they can instead purchase the assets. The reason is that the assets can be more easily separated from any accompanying liabilities that the company may have. Stock sales can also occur in situations where something less than the entire company is being sold. For instance, in a small corporation, where one owner desires to leave the corporation, he or she will often sell his or her stock to one of the remaining owners. Determining the buy-out price of the stock is often one of the biggest impediments to closing such a stock sale, as valuing a small corporation is not an exact science and often subject to multiple interpretations.