Share Purchase Agreement Tax Implications

Negotiations between an asset and a share sale typically see the purchase price somewhere in the middle, essentially with the value of the lifetime capital exemption that would otherwise have been available in the event of a share sale between the two parties. Given the nature of the indemnification clause and the fact that the benefits for the indemnity party are considerable, the application of the clause is limited to cases well defined in the share purchase contract, i.e. the entry of which results from the events indicated and refers to the taxes fixed in the contract, the maximum liability of the buyer being strictly limited to a certain amount (if the parties have such an amount) for: an event and/or all events listed together. While a seller can be held liable to the buyer for all pre-closed taxes of the objective through the pre-closing indemnity, this does not mean that a seller is indifferent to excessively broad and unsused tax representations and warranties. Most sales contracts lay down a precondition for the buyer`s conclusion that all of the seller`s assurances and guarantees on the balance date are true and accurate (or correct in all essential respects) with the same force and effect as if such assurances and guarantees had been given on that date and date. Therefore, a buyer usually has the right not to conclude the transaction (usually called « Walk Right ») when an infringement is detected between the date of signature and the conclusion of the transaction and when it is essential. This gives the buyer the option to either terminate the transaction or renegotiate the purchase price with the seller if violations are found in the meantime. Tax representations and guarantees, such as those that have nothing to do with taxation, play a role in facilitating this right. Each of these options has different tax advantages and considerations for buyers and sellers, which must be understood and carefully weighed before proceeding with the sale or purchase. As the name suggests, during an asset sale, the buyer acquires ownership of a company`s assets such as inventory, equipment and receivables. It`s easy to see why many buyers prefer this buying method that allows the buyer to choose which assets they want to buy and limits their exposure to risk.

Normalized net rolling assets are typically included in an asset sale contract. Net rolling assets are made up of items such as receivables, inventories and lenders. Due Diligence can help you determine the need (and level) for insurance, guarantees, indemnification rules and whether trusts and holdbacks are required in the sales contract….