The Law Offices of Paul H. Appel – Your Trusted Business Law Partner in New Jersey
Stock Purchases · New Jersey
When you buy a corporation's shares, you take over the company exactly as it stands — contracts, permits, tax history and all. The stock purchase agreement is what allocates that history between buyer and seller.
The service
A stock purchase agreement (SPA) transfers ownership of a corporation's outstanding shares from its shareholders to the buyer. The corporation itself does not change: its name, bank accounts, employees, leases and licenses stay where they are. That continuity is the main attraction of the structure, and also its main risk, because the corporation's liabilities stay where they are too.
The firm represents buyers and sellers in the acquisition of New Jersey corporations as part of its broader mergers and acquisitions practice. Paul H. Appel drafts or reviews the SPA, negotiates it with the other side, and coordinates closing. If you have not yet settled on structure, start with the comparison of asset and stock purchases.
Distinctive provisions
Title
The seller must represent that it owns the shares free of liens, options or claims, and that nobody else holds rights to acquire stock. Buyers verify this against the stock ledger, share certificates and any shareholder agreement.
Capitalization
A capitalization representation listing all authorized and issued shares, and confirming there are no warrants, convertible notes or promised equity to employees. Undocumented promises of equity are a frequent surprise in closely held companies.
Liabilities
Because every past obligation stays in the corporation, the SPA needs broad representations about taxes, litigation, employees and compliance, plus an indemnity for pre-closing liabilities. Read how undisclosed liabilities reach buyers.
Tax status
If the corporation has elected S corporation status, the buyer must be an eligible shareholder or the election can terminate. Certain elections can also treat a stock purchase as an asset purchase for tax purposes. These questions belong with your accountant before signing.
Other SPA terms
These terms appear in most share acquisitions of closely held New Jersey companies.
No assignment occurs in a stock sale, but many leases, loans and franchise agreements treat a change in ownership as requiring consent. Missing one can put a key contract in default.
When several shareholders are selling, the SPA must bind each of them, define how proceeds are split, and appoint a sellers' representative for post-closing matters.
Price mechanics usually assume the company is delivered free of debt with a normal level of working capital; adjustments at closing reconcile the difference.
Resignations of outgoing officers and directors, new appointments and updated bank signatories are closing deliverables.
The selling shareholders usually release any claims they have against the company, so the buyer is not surprised by an old loan or unpaid bonus owed to a seller.
Non-competition and non-solicitation commitments from the sellers protect the goodwill reflected in the price.
Process
The firm reviews the term sheet, the corporation's certificate of incorporation, bylaws and any shareholder agreement, then sets out the scope and fee in writing.
Corporate records, contracts, tax filings, employment matters and litigation are reviewed, because in a share deal the buyer inherits them all.
Representations, disclosure schedules, indemnity, escrow and covenants are negotiated directly with the sellers' counsel.
Shares are transferred, the stock ledger updated, board changes documented, and consents and payoffs completed.
Questions & answers
It is the contract under which a buyer acquires shares of a corporation from its shareholders. It sets the price and how it is paid, the sellers' representations about the company and their shares, the indemnity if those representations prove wrong, the conditions to closing, and the sellers' post-closing commitments. In an LLC the equivalent is a membership interest purchase agreement.
Ownership and capitalization first: who owns the shares, whether any options or promises of equity exist, and whether a shareholder agreement restricts the sale. Then everything the company carries forward — taxes, contracts with change-of-control terms, employee matters, litigation, permits and debts. The diligence is usually broader than in an asset deal.
It can. S corporations may only have eligible shareholders, and an ineligible buyer, such as another corporation, can cause the election to terminate. There are also tax elections that change how a share purchase is treated. Because the consequences depend on the facts, the buyer and seller should each have their accountant review the structure before signing.
Contracts are not assigned in a stock sale, so ordinary anti-assignment clauses are often not triggered. However, many leases, loans, franchise agreements and customer contracts include change-of-control clauses that require notice or consent when ownership changes. Diligence should identify each one so consents are obtained before closing.
Your attorney
Every matter at the firm is handled personally by Paul — the same attorney reads the documents, gives the advice and negotiates on your behalf.
Contact
Describe what the business is dealing with — a contract on your desk, a deal in progress, a dispute or a company you are about to form. You will hear back from the attorney who handles the work.
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