Share Purchase and Sale Agreements
The definition of the shares, title and encumbrances, price, payment, price adjustment, signing and closing, conditions precedent, interim period management, representations and warranties, disclosures, indemnification, liability limits, non-compete, confidentiality, announcements, tax, dispute resolution and termination are regulated.
The agreement is not prepared detached from the legal due diligence report. It is marked which provision manages each critical finding in the agreement; instead of relying only on general representations, an appropriate indemnity, remedy or condition to closing is considered for the specific risk.
Asset and Business Transfer Agreements
The assets that will and will not be transferred, debts, contracts, employees, receivables, inventory, intellectual property rights, real estate, permits, data and records are defined in detailed schedules. The form, registration, notification and counterparty consent required for the transfer of each element are added to the closing plan.
In a transfer of a business as a whole, the consequences under the Turkish Code of Obligations, the Turkish Commercial Code, labor law, tax and creditor protection are reviewed together. It is taken into account that the allocation of debts determined by the parties in the contract may not in every case remove statutory liability towards third parties.
Representations and Warranties and the Disclosure Letter
The seller’s representations on share ownership, authority, accounts, contracts, debt, tax, employees, litigation, permits, data, intellectual property and compliance are prepared specifically for the target. Instead of general and unlimited wording, the knowledge standard, the period, materiality and the disclosure standard are expressly written.
The disclosure letter shows the exceptions to the representations in a specific and understandable manner. If every document in the data room were deemed disclosed automatically without any standard of disclosure, the risk could be transferred to the buyer in an indeterminate way. The sufficiency of disclosure and its contractual consequence are expressly regulated.
Indemnification, Liability Limits and the Claims Procedure
General and specific indemnities, the overall liability cap, the minimum claim threshold, basket, time limit, third-party claims, mitigation of loss, the prohibition of double recovery, and insurance and tax effects are regulated. Different regimes may be established for fraud, authority, title to shares, tax or certain critical matters.
The economic value of the indemnity provision is assessed together with the ability to pay and the applicable security. A broad indemnity written in the contract alone may not provide sufficient protection if the seller has no ability to pay after the transaction.
Price Mechanisms
The legal provisions of fixed price, locked-box, completion accounts, net debt and working capital adjustment, earn-out, deferred consideration and share-based consideration models are prepared. Financial definitions and sample calculations must be consistent with the financial advisors; the accounting policy, the order of precedence and dispute resolution must be determined.
Value leakage during the locked-box period, the data and objection process in the completion accounts, and the management of the business and the buyer’s decision-making authority in an earn-out are expressly regulated. Leaving the price formula uncertain may turn into a long-running accounting dispute after the transaction.
Escrow, Retention of Consideration and Security Structures
Holding part of the price in a secure account, retaining it, or supporting it with a letter of guarantee, a pledge over shares, a guarantee or another assurance is regulated by the amount, term, release, claim and dispute conditions.
The legal validity of the security, its priority, its realization, its enforcement in a foreign country and the effect of bankruptcy are reviewed. The regulatory status of the escrow agent and the account terms are verified before closing.
Frequently Asked Questions
What are representations and warranties?
They are the assurances a party gives in the contract about a certain legal or factual situation. If they are inaccurate, indemnification or another right may arise under the conditions in the contract. The scope, knowledge standard, disclosure, materiality and time limit must be expressly regulated.
What is the disclosure letter for?
It sets out in a specific manner the exceptions to the seller’s representations and warranties. It shows which risk the buyer knows about and accepts. Instead of a vague or blanket reference to the data room, it is important to give a disclosure in sufficient detail that is linked to the relevant representation.
Are indemnification and representations and warranties the same thing?
No. Representations and warranties give assurance about a certain situation; the indemnification provision regulates how the loss will be remedied when a specified event or breach occurs. The claim conditions, limits, time periods and security are written separately.
Does transaction insurance replace legal due diligence?
No. For representations and warranties insurance as well, a review, adequate disclosure and an understanding of the policy exclusions are required. The policy coverage may not be the same as the transaction agreement; the premium, retention, limit and claims process are assessed separately.
What is the difference between a locked-box and completion accounts?
In the locked-box model, the price is determined according to a past balance sheet date, and value leakage between that date and closing is restricted. In completion accounts, the price is adjusted afterwards according to items such as debt, cash and working capital as of the closing date.
What risk does an earn-out carry?
It ties part of the price to the target’s future performance; however, the calculation method, the accounting policy, who will manage the business and how, and extraordinary transactions may create disputes. The measure, period, information right and independent expert process must be written clearly.
Why is an escrow account used?
It holds a certain part of the price as time-limited security for indemnification or post-closing obligations. Under whose instruction and under which conditions the account will be released must be consistent between the contract and the bank’s or intermediary institution’s documents.