The Preliminary Share Purchase Agreement is a crucial document in Indian corporate transactions that precedes the final share purchase agreement. It is typically used when parties have reached an initial understanding on key commercial terms but require a formal framework for due diligence and detailed negotiations. This document, while non-binding in most aspects, creates a structured environment for the transaction by outlining the proposed share purchase terms, due diligence process, exclusivity arrangements, and conditions for proceeding to definitive agreements. Under Indian law, particularly considering the Companies Act 2013 and securities regulations, this agreement serves as a roadmap for the transaction while protecting both parties' interests during the preliminary phase. It's especially important in complex transactions where detailed investigation of the target company is necessary before finalizing the deal.
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1. Parties: Identification of the seller(s), purchaser(s), and the target company
2. Background: Context of the transaction, including brief description of the target company and purpose of the agreement
3. Definitions and Interpretation: Definitions of key terms used throughout the agreement and rules of interpretation
4. Subject Matter of Sale: Description of shares being sold, including class, number, and percentage of total share capital
5. Purchase Price and Payment Terms: Preliminary agreement on purchase price, payment structure, and any adjustments
6. Due Diligence: Framework for conducting due diligence, including scope, timeline, and access to information
7. Conditions Precedent: Conditions that must be satisfied before proceeding to definitive agreements
8. Exclusivity: Commitment not to negotiate with other parties during the specified period
9. Confidentiality: Obligations regarding confidential information exchanged during negotiations
10. Costs and Expenses: Allocation of transaction costs between parties
11. Term and Termination: Duration of the preliminary agreement and circumstances for termination
12. Governing Law and Jurisdiction: Applicable law and courts having jurisdiction over disputes
1. Break Fee: Applicable when parties agree to compensation if either party backs out under specified circumstances
2. Management Rights: Include when purchaser requires interim management rights during the preliminary period
3. Regulatory Approvals: Required when the transaction needs specific regulatory clearances
4. Employee Matters: Include when there are specific agreements about key employees or management retention
5. Foreign Investment Provisions: Required when the purchaser is a foreign entity, addressing FEMA compliance
6. Non-Compete and Non-Solicitation: Include when parties agree to preliminary restrictions on competition
7. Earnest Money: Required when parties agree to a deposit or earnest money arrangement
8. Interim Operations: Include when specific restrictions on target company operations during the preliminary period are needed
1. Details of Shares: Comprehensive information about the shares being sold, including share certificates and folio numbers
2. Purchase Price Calculation: Methodology and assumptions for preliminary valuation
3. Due Diligence Checklist: List of documents and information required for due diligence
4. Timetable: Proposed timeline for due diligence, definitive agreements, and closing
5. Seller Warranties: Preliminary warranties about the shares and target company
6. Target Company Information: Key details about the target company's business, assets, and operations
7. Form of Definitive Agreement: Outline or key terms of the proposed final share purchase agreement
8. Required Consents and Approvals: List of third-party and regulatory approvals needed for the transaction
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