Agreements for buying or selling existing shares

13 Jan, 2022 - 00:01 0 Views
Agreements for buying or  selling existing shares

The Herald

Godknows Hofisi


On October 21, 2021 I wrote an article titled “Transacting in new vs existing shares”.

In that article I explained the difference between the issue or allotment of new shares compared to the exchange by shareholders of existing shares or shares already issued.

Issue of new shares

It is important to understanding the following key points associated with the issue of new shares:

  • When new shares are issued, allotted or sold by a company from its authorised share capital the consideration, payment or cash goes into the company.
  • Issuing new shares increases the number of issued shares and may dilute the existing shareholders’ effective shareholding unless done in the form of a rights issue.

Existing shares

The following are the salient features of a sale or acquisition of existing shares:

  • An existing or current shareholder of a company sells his or her shares to another existing or a new shareholder for consideration or cash.
  • Funds are paid by the buying shareholder to the selling shareholder. Funds do not go into the company.

Key provisions in the agreement

The share purchase agreement for existing shares captures the transaction leading to the exchange of shares. The following are the key provisions found in such an agreement.


These are the parties to the transaction, being the seller and the purchaser. The seller is the existing shareholder and the purchaser the new shareholder. Their full and correct details have to be captured.


This gives context to the agreement. This may include the full name of the company, its registration number and its business. Other provisions may include the company’s authorised share capital, issued share capital, current shareholders and directors.


As is done for most agreements this part will defines key words or names used in the agreement. This helps to minimise disputes in interpreting the agreement.

Conditions precedent

Parties may agree on conditions precedent such as:

  • Internal approvals being procured from the directors or shareholders,
  • External approvals being obtained from regulators for example.

Effective date

This is common in most agreements as it clarifies the effective date of the agreement which may be different from date of signature thereof.


The part describes the sale. For example it may be captured or worded as “The seller hereby sells to the purchaser who hereby purchases 50 ordinary shares held by the seller out of the company’s 100 ordinary issued shares, as described below under the terms and conditions contained herein”.

Description of shares

This part describes the shares which are subject of the transaction. For example “50 ordinary shares held by the seller in the company”.

The company would have been defined, for example XYZ (Private) Limited. It may be necessary to add further description by way of what the shares amount to as a percentage of the company’s current issued shares if that will not cause problems in future if new share are issued.

Purchase price and payment terms

This clause records the price that the purchaser has to pay. Clarity should be given on the Value Added Tax (VAT), currency and the amount. Payment terms usually include deposit paid upon signing and any subsequent instalments.

Transaction costs

Such costs may include payment for the preparation of the agreement, any consultancy fees or company secretarial fees incurred to give effect to the transfer of the shares.


This clause is very important and has to comply with Part H of the Companies and Other Business Entities Act (Chapter 24:31).

It addresses when shares are transferred to the purchaser. For example shares may be transferred all at once when full payment has been made.

In other situations there may be piecemeal transfer depending on the pro rata payments to be made but this may bring clutter.

The same clause may be used to bring clarity as to what the new shareholding will be after the transaction under consideration.

One may find wording such as “For the avoidance of doubt, after the current transaction and transfer of shares, the shareholding share be as follows…”.


Parties may agree to give each other warranties such as that:

  • All internal and external approvals have been obtained.
  • Where one acts in a representative capacity that he/she is duly authorized thereto by necessary resolutions or special powers of attorney, as the case might be.
  • That shares are not in dispute.

Shareholders’ rights and obligations

Key rights and obligations may be included here or this may be captured through a separate shareholders’ agreement. Some of the rights include appointment of directors and chairman, restriction to transfer, management of the company, etc.


This clause is included to provide safeguards to the parties and usually cover:

  • What constitutes breach by the purchaser, usually failure to pay the purchase price in terms of the agreement.
  • What constitutes breach by the seller, usually failure to give effect to the transfer of shares.

Consequence of breach

Normally provides for notice to rectify, remedies such as cancellation or legal action for positive action.

Dispute resolution

This clause may provide for mediation, arbitration or litigation depending on what parties may agree.


This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant and consultant in deal structuring and is an experienced director of companies. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected]


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