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What is a Securities Purchase Agreement?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 November 2016
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When it comes to the purchase of stocks and bonds, there is the need to regulate the purchasing of any type of securities, so that both the buyer and the seller have a clear understanding of the provisions of the transaction. This is why the proper drafting and execution of a securities purchase agreement is so important. Here is some general information about the securities purchase agreement, including a few of the points that the typical securities purchase agreement will address.

Just like all purchase agreements, the agreement is simply a documented outline of what type of transaction is taking place. The agreement specifies exactly what types of securities are being sold, the number of each type of security involved in the ownership transfer and the terms related to the transaction. In many cases, a purchase agreement may include documentation regarding the fair market value of the stocks, bonds, and other securities that are being sold. The idea behind all this detail is to ensure that both parties understand exactly what is being sold, the purchase price and how the buyer is to pay for the securities.

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While the exact structure of a securities purchase agreement may vary based on local laws, there are several elements that are always found within these types of agreements. First, the agreement will often lead off with verbiage that is referred to as a recital. The recital is simply identifying the buyer and the seller, any corporate entities involved in the sale, and the intent of the seller to allow the buyer to purchase the securities, based on commonly agreed criteria. This opening section lays the groundwork for the detailed sections that will follow.

The terms of purchase and sale of the securities will also often be highlighted as a separate section. Within this section, specific details about the items that are being sold will appear. This list will document the number and type of shares being sold, their market value, and the purchase price. Often, identification numbers that appear on the stock certificates are also included in the terms of purchase and sale. This section helps to properly identify each and every security that is covered in the sale, making it impossible for there to be any miscommunication on what is and is not part of the sale.

Another important section within the purchase agreement addresses the method of conveyance. Essentially, this spells out how the seller will receive compensation for the sale of the securities. For instance, this section may specify specific dates over the next six months to a year in which payments for the securities are due. The securities may be delivered in installments as well, depending on the arrangements that are laid out as the agreed upon means of conveying the securities to the buyer. Once again, this section ensures there is no misunderstanding about what each party expects from the other.

One other key section of any securities purchase agreement is the Listing of Assumed Obligations. This will specify whether or not the buyer is taking over responsibility for any liabilities connected with the securities he or she is acquiring. This section can also be used to specify which party is responsible for any legal fees incurred for the creation and filing of the agreement. Specifically addressing any issues of liability in the text of the purchase agreement will ensure that any matter which could impact the sale of the securities is addressed, with all parties in agreement about who will assume responsibility for what.

A securities purchase agreement is essential when buying and selling any type of stocks, bonds, or other securities. By paying close attention to the wording and making sure all pertinent details are included, both parties will be satisfied with the terms of the sale.

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