<p>A sales and purchase agreement (SPA) is the most commonly used document in  commercial transactions, from deals involving purchases of commodities, shares,  businesses and real estate, these types of contracts are vital to business  activity.&nbsp; To execute any deal successfully you need the protection of a well  drafted SPA, but often buyers or sellers fail to take even the basic steps  required to protect their own interests.<br /><br />Below are the top 10 &ldquo;red flag  errors&rdquo; we see when buyers or sellers consult us afterwards looking to salvage  their money or assets, or otherwise engage in &ldquo;damage control&rdquo;.</p>
<ol>
<li>Doing the Deal with the Wrong Person<br />The best drafted SPA in the world is  no use to you, if you sign it with a fraudster or an incompetent.</li>
<li>Essential Parties Are Not Part of&nbsp; the SPA<br />Often buyers will sign an SPA  with Company A, when in reality Company B (or a Shareholder in Company A), is  the actual owner of all or part of the assets being purchased.&nbsp; On the sell  side, sellers often engage in a contract under which Company C is buyer and  makes significant final commitments to the seller, but seller does not realize  until it is too late that Company C is merely a shell company with no assets to  meet the commitments.&nbsp;</li>
<li>Failure to Identify and Address Essential Pre Conditions to the  Deal<br />Conditions precedent are conditions and events which must be resolved  before a transaction detailed in an SPA can be completed.&nbsp; Any buyer or seller  has to identify all these preconditions and make sure they are all properly  addressed in the SPA.&nbsp; Important conditions to include are clearance of the  seller&rsquo;s debts, third party consents, transferring key employees, banking  approvals, and clearances and approvals from the appropriate authorities&nbsp;&nbsp;</li>
<li>Failure to Specify a &ldquo;Long Stop Date&rdquo;<br />Commonly conditions have to be met  before the deal can close. What if the time for satisfying conditions or  obtaining approvals blows out from weeks to months? In this case buyers and  sellers need to have a &ldquo;Long Stop Date&rdquo; in their SPA, so they can bail out of  the SPA if the delay becomes untenable for them. If essential preconditions are  not met by this long stop date, one or both parties can walk away from the  deal.&nbsp;&nbsp;&nbsp;</li>
<li>Failure to Agree Necessary Financial Adjustments<br />In some deals, buyers  seek to protect themselves by including a post acquisition price adjustment.&nbsp;  Upon completion of the transaction, the buyer&rsquo;s accountants finalize the  accounts and determine the net assets of the company to evaluate whether the  price paid at completion was greater or lower than agreed for.&nbsp; If the price was  greater than the value, the buyer will be granted a reconciliation payment.&nbsp; An  alternative to the post completion price adjustment is the &ldquo;locked-box&rdquo; approach  where the seller makes detailed and specific commitment as to the value of the  business&rsquo;s net assets at closing. If the business suffers major losses or the  sellers strip out dividends, any buyer without these safeguards will be  financially exposed.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Failure to be Specific about Closing Requirements<br />An SPA should clearly  identify all actions to be taken and all the documents to be provided at  closing.&nbsp; Examples include discharge of banking facilities, handover of customer  and financial records, change of bank and regulatory signatories, original  documents, and obtaining regulatory approvals.&nbsp;</li>
<li>Failure to Protect Against Competition from the Seller<br />Any buyer should  consider whether it is appropriate that the SPA contain contractual terms  restricting the seller from competing with or soliciting customers, suppliers,  and against poaching employees of the business for a specified period of time  after completion.&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Failure to Change Signatories<br />Often buyers overlook the need to change  the signatories to essential banking and business accounts.&nbsp; Third parties must  be notified in a timely fashion of the new owners and accept the  signatories.</li>
<li>No Simple and Effective Dispute Resolution<br />In the run up to closing,  arguments over money and adjustment are common.&nbsp; The SPA can ease these problems  by providing for independent experts to conduct valuations and provide their  expert advice on (and if necessary determine) issues in dispute.</li>
<li>Skimping on Lawyers&rsquo; Fees<br />Often parties download &ldquo;ready made&rdquo; contracts  from the internet, adapt a form from the last deal or try to draft the contract  themselves.&nbsp; Ensure you have a specialist lawyer review the SPA.&nbsp; Lawyers&rsquo; fees  for reviewing SPAs are often a tiny fraction of lawyers fees for litigation, or  catastrophic financial losses from a deal gone bad or a deal which should never  have been done. </li>
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