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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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Ideally for Alex J. - Company Law - Share Transfers I have

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Ideally for Alex J. - Company Law - Share Transfers

I have agreed in principle to sell my shares to the two remaining directors. I wanted say 20 ‘units’ for my shares, but for cash-flow reasons, after much negotiation, we have agreed in principle for the shares to be transferred to the directors for 10 units, via a solicitor’s escrow service. To make up for the gap remaining, a further 10 units has been agreed through a consultancy service offered to the company, in instalments over the year following.

So strictly speaking, the shares will be transferred for 10 units worth. As soon as I sign and return the share transfer agreement, this 10 units worth of money that is held in escrow will be released to me. After that, I want this consultancy agreement to kick in, as water-tight as can be, to reach this 20 units in total.

The share transfer agreement, however, contains some wordage which I wonder whether it puts this ongoing consultancy agreement at risk. It reads [my comments in brackets]:

[standard terms…]

Further, in consideration of the sale of my shares, I acknowledge that:

1- neither I nor any person connected with me has any claim of any nature outstanding against the Company; [this I can live with…]

2- there is no agreement or arrangement outstanding under which the Company has or could have any actual or contingent obligation to me or to any person connected with me; [this may complicate the additional agreement…]

3- the Company does not owe any sums to me or to any person connected with me, and, to the extent that any such claim, obligation or sum exists or may exist as at Completion, I irrevocably and unconditionally waive such claim, obligation or sum and all rights of action I may have against the Company in respect of it. [this also gets a bit close for comfort…]

[more standard terms…]

The first bullet seems standard and fine to me.

The second bullet speaks in terms of ‘me’ as a personal legal entity. The consultancy agreement I have proposed is between their company and my company, so the arrangement is between two body corporates, not me as an individual. Their company would still have an obligation to pay my company, so there is in fact an arrangement outstanding under which their company has an obligation to the corporate legal entity I co-own.

Same for the third bullet, speaking in terms of ‘me’, ‘I’ and ‘person’. Their body corporate legal entity does still owe my body corporate legal entity the remaining 10 units, and they will sign an agreement as such.

I just want to avoid a scenario where they knowingly trick me in invalidating the second part of this deal by signing these terms.

Am I right in thinking that ‘me’ and ‘I’ wordage here does not affect the second agreement that exists between the corporate entities? Or should I be worried about this?

Can I alter these terms in any way to avoid any possible implications for the validity of this secondary arrangement?

Appreciate your views, thanks.

Thank you very much for requesting me and welcome back.

I am just reviewing this now. I will prepare a response and any questions I have and post it this morning.

Kind regards


Thank you.

The first point I would make is the Share Sale agreement should contain wording along the lines of similar to "the consultancy appointment and execution of a consultancy agreement by the company is a CONDITION (very important word) of the sale of the shares to X by you". A contractual condition has much more serious implications than a contractual term - it means it goes to the very root of the agreement and defines the purpose of the agreement between the parties. Breach of a condition also for damages and the contract to be rescinded as a remedy.

In relation to the three points above:
Point 1 - is not an issue for me
Point 2 - is fine save that it should say with the exception of the company's obligations to you under this agreement and the consultancy agreement.
Point 3 - is not agreeable - it is totally undefined, out of your control and has no limitation to it.

What exactly is a "connected person"? Are they going by the definition under the companies act? If not it could be anything and anyone?

Also what power do you have to control whether a connected person enters into any form of legal relation with the company. If they are concerned about specific liability (for example your wife has a company car through the company or an insurance policy) then they should specifically state what that liability is, not try and cover everything going.

I look forward to hearing from you.

Kind regards

Customer: replied 4 years ago.



I see what you mean with "Connected person" which in chapter 9 section 252:


"The persons who are “connected” for this purpose with a director include:

• certain companies with which the director is connected (see section 254);"

So yes, that would threaten the secondary deal even though they have already signed it by now. As is, they could simply claim is has been rendered unenforceable.

So I have rewritten those last two bullets and added the condition. They ave pretty much accepted all changes.

Last quick question, perhaps kind of obvious. The whole document is in a letter form, from me to them. There no signature areas. So it appears it's just a statement of intent, a confirmation, not a signed agreement. Should I insist on them signing this as an acceptance? Thanks!


Thank you.

To make it legally enforceable you should either:

1. Execute it as a deed by both parties - the danger of this is it will be enforceable for 12 years;
2. There should be a clause in it saying something similar to "in consideration of the parties complying with the terms and conditions of this agreement the seller agrees to sell and the buyer agrees to buy x shares subject to the terms and conditions of this agreement.

Kind regards

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