(1) SUMMARY The sale and purchase of shares is often made conditional upon the satisfaction of one or more conditions. Why is this useful? What are the consequences of such conditions precedent with regard to the transfer of the ownership and what is the impact on the transaction timeline? (2) CONDITIONS PRECEDENT - What are we talking about? When parties enter into a share purchase agreement (‘SPA’), they can make completion of the deal subject to the fulfilment of certain conditions precedent (or simply ‘CPs’). A condition precedent in a SPA is used to safeguard the position and minimize the risk of (usually) the purchaser. It provides the relevant party with the possibility to “unwind” the transaction and escape the performance thereof in case one or more events have not occurred or conditions have not been met. For example, the seller may have entered into a certain commitment (e.g. under a shareholders’ agreement) that prevents him from transferring his shares. (3) CONSEQUENCES: Signing and Closing: As soon as the agreement is signed (‘signing’), it becomes a final and binding agreement. That said, because of the inclusion of one or more conditions precedent, the performance of the agreement stays subject to the fulfilment of one or more well-defined future and uncertain events. In case any of the conditions are not satisfied, the agreement will be without consequence (at least with regard to the envisaged transfer of the shares). The agreement will only be executed (‘closing’) in case the conditions are realized, or in case the respective party, in whose favor the clause has been drafted/negotiated, waives the unfulfilled condition(s). (4) OPTION: The period between signing and closing brings uncertainty to the deal, as the deal is in principle agreed on but completion is still subject to one or more conditions precedent. In order to limit such situation of uncertainty, parties can agree on an ultimate date (the so called ‘long-stop date’) by which the conditions shall need to be satisfied. In case the conditions are not realized or waived before the long-stop date, the deal will automatically take an end. (5) REALISATION OF THE CP: As soon as the conditions precedent are realized, or waived by the party in whose favor they were negotiated, the ownership of the shares will be transferred (and typically simultaneously with the payment of the purchase price). Happy Reading! Dial A CFO Atlanta | New Delhi | Singapore CFOing | Accounting | Compliance -------------------------------------------------------------------- To subscribe to our NewsByte over WhatsApp, just write "Hello News " in Subject and email to hello@dialacfo.in or WhatsApp at https://tinyurl.com/DialACFO