If you are not in the investment business and therefore have experience in closing deals, most entrepreneurs do not systematically negotiate the sale of their business. This means that these business owners should always hire a good corporate lawyer to act on their behalf, to mitigate possible legal pitfalls. Another more recent development has been the imposition of ACD (Additional Conveyance Duties). This applies to the transfer of shares if a company consists of at least 50% (asset ratio) of its total assets from prescribed real estate in Singapore. Usually, it depends on the value of the transaction. If the amount of the sales consideration is less than S$1,000, you can make a sales call to view the documentation for yourself. However, once the consideration for selling your business is in the millions, you will definitely hire a good corporate lawyer who is familiar with transactional work to advise you on how to look for potential pitfalls in the transaction documentation that are detrimental to your position. In most transactions, the seller always wants a higher price and the buyer wants the lowest price to close the deal. As a result, the parties sometimes find themselves at an impasse. One way out of such an impasse is for the buyer to agree to pay the higher price the seller wants, but divides the consideration for the sales into two payment tranches. When the company`s financial data reaches the relevant financial matrix required by the higher price, the second tranche of the sales consideration is given to the seller.
Otherwise, the second tranche of the consideration for the sales may be forfeited. In this way, the transaction can be concluded and both parties are happy to get what they want in the transaction. Businesses in Singapore come in many shapes and sizes and some are passive companies or better known as investment holding companies that typically hold investments in shares or real estate, and some are active operating companies that conduct commercial ventures. This article assumes that they are active operating companies that carry on an active business activity. Although the sale price is only a clause of your purchase contract, it is usually calculated on the basis of a certain financial multiple on net profit/EDBITDA or turnover. As a salesperson, spend time studying your industry so you don`t miss out when you sell your company`s shares. However, for operating companies, especially if it is a company that you did not create from the first day but acquired beforehand, it is possible to negotiate with the buyer to limit your representations and guarantees to the number of years during which you held the shares. Some people have tried to cut costs in recent years and rely on online agreement templates. Some of these agreements we accept may be somewhat helpful, but legal pitfalls can only be determined or discovered by a good corporate lawyer acting for you. If you have further questions about important legal issues arising from negotiating purchase agreements, leave a comment below or if you have transaction-specific questions and need a corporate lawyer to review your contracts, contact us. Transfers of shares under the Stamp Duty Act incur stamp duty, and this stamp duty is payable when you file the transfer of shares with your corporate secretary in accordance with the share transfer form.
The stamp duty rate in Singapore for these share transfers is 0.2%. A little legal advice for the seller. As a general rule, most sellers want to give as little insurance and guarantees as possible. The fewer representations and warranties there are, the less likely you are to be sued for breach of the purchase agreement. For real estate holding companies, the insurances and guarantees given are usually small and limited. So, if your business owns such real estate, don`t forget to check with your lawyers if ACD is applicable to the sale of your company`s shares in relation to those sales shares. If you have any comments on our article, please leave a comment below. The basic rule in the transaction is as follows. If you have not hired a corporate lawyer and such a corporate lawyer is involved in the transaction, it is very likely that this lawyer will bring an action against you. On the other hand, many sellers still imagine that their companies have very high multipliers and, therefore, are unable to reach a price agreed with the potential buyer.
One rule of thumb is to reduce the current public market price-to-earnings ratio for private companies by 50%. Why would you do that, as a seller? It`s about leaving some meat on the table for the potential buyer. If you`re not sure what price to sell, hire a small accounting firm to do an office evaluation for you. .
