In this second post of my ongoing series focusing on the private company purchase and sale agreement I tackle the introductory components of the contract, such as the title, date, parties, recitals and “lead-in” to the meat of the agreement. Click here to review my first entry, a summary of the material components of a typical purchase and sale agreement.
While the preamble to a purchase and sale agreement is by no means the “sexiest” aspect of the contract, it’s nonetheless important for a few reasons, principally to provide the reader with an overview of the nature and context of the agreement and to set the stage for what is to come. A well-drafted preamble will clearly and concisely contain the following elements:
- Title. The title to the purchase and sale agreement should be short but not entirely generic so as not to indicate what the contract deals with. Instead of “Agreement”, for example, “Asset Purchase Agreement” or “Share Purchase Agreement” should be used.
- Date. The effective date of the purchase and sale agreement should be included at the beginning of the contract. Not only is the date important for internal references but also to permit for more specific descriptions later, either in ancillary closing documents or for other external purposes.
- Parties. It is critical that all parties to the purchase and sale agreement (the purchaser and the vendor, of course, but also any principals, covenantors or indemnifiers that will be bound by the contract) be fully and properly described. This includes reference to the full legal names of the parties (whether individuals, corporations or other entities), their jurisdictions of residence, incorporation or formation, as applicable, and their addresses (to, among other things, avoid confusion among the same or similarly named persons).
- Recitals. The recitals to a purchase and sale agreement serve a twofold purpose – one, identifying the relevance of each of the parties and background context leading to the consummation of the purchase and sale agreement and ultimately the completion of the purchase and sale transaction and, two, describing the subject matter of the contract (that is, the parties’ intentions in entering into the agreement – who is buying what from whom). Recitals should not include representations, covenants or any other contractual obligations of any kind as those are more appropriately dealt with in the body of the agreement.
- Lead-in. The final part of the preamble is lead-in language to the material provisions of the purchase and sale agreement. Oftentimes the lead-in includes archaic reference to consideration, which is generally not necessary.
Given their length and inclusion of schedules and exhibits, most purchase and sale agreements will also include a cover page and table of contents, which provide helpful reference to the reader.
In my next post in this series, I will delve into the “interpretation” section of the purchase and sale agreement, which enumerates defined terms and contains other rules of interpretation applicable to the contract.