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Glossary of Terms – Company Law

Articles of Association The constitutional document of a company, which provides rules on how the company is governed.

Asset Purchase Agreement A contract which sets out the terms relating to the sale and purchase of assets.

Call Option A right granted by a shareholder to another person to allow that other person to acquire shares of the shareholder.

Data Room A secure online platform to which documents are uploaded (typically relating to the company or business being purchased), so that they can be viewed by the parties to the transaction and their advisers.

Debenture A document creating a charge over all or most of a company’s assets as security for the obligations of the company to a third party (usually a lender).

Disclosure Bundle A bundle of documents which accompanies the Disclosure Letter.

Disclosure Letter A letter prepared by the seller of shares or assets, containing information that is disclosed to the buyer in relation to the warranties. The buyer will usually agree that the seller will not be liable for a breach of warranty where the matter giving rise to the breach has been disclosed in the disclosure letter.

Dividend in Specie The transfer of an asset (rather than cash) by a company to a shareholder as a dividend.

Drag along A right of the shareholders that hold a majority of shares in a company and who are proposing to sell their shares to a buyer to require that the other shareholders sell their shares to the buyer too.

Exclusivity Agreement An agreement whereby the seller of shares or assets agrees not to negotiate with anyone other than the buyer for a specified period.

General Meeting A meeting of the shareholders/members of a company.

Good Leaver / Bad Leaver A provision which classifies certain circumstances giving rise to the termination of an employee’s employment and depending on whether those circumstances are stated to be good or bad, leading to different valuations for shares held by such employee in the context of them being required to offer their shares for sale on termination of their employment.

Heads of Terms (also Memoranda of Understanding, Heads of Agreement or Term Sheet) A document setting out the key terms of a proposed transaction which are agreed in principle, which are typically not legally binding other than certain provisions relating to exclusivity and confidentiality; one of the purposes of the document being to ensure there is consensus on key terms before spending time and money further progressing the transaction.

Hive up (and Hive down) The transfer of a business and assets from a subsidiary to parent company (or, in the case of Hive Down, from the parent company to the subsidiary).

Indemnity A contractual obligation to protect a person against damage or loss in respect of a specified matter or event, by paying for the damage or loss.

Intellectual Property Rights arising from intellectual effort, including (amongst others) copyright, trademarks and patents.

Management Buy-Out The purchase of all or part of a company by some or all of the existing management.

Memorandum of Association A constitutional document required as part of the formation of a company.

Nominal Value The face value allocated to a share, as opposed to its market value which may be higher or lower.

Par Value see Nominal Value

Pre-emption Rights In relation to the transfer of shares, the right of existing shareholders to be offered shares which a shareholder is proposing to sell; and in relation to the issue of shares, the right of existing shareholders to be offered shares which are proposed to be issued by the Company.

Put Option The right of a shareholder to require another person to buy their shares in the future.

Quorum The minimum number of people required to conduct a valid meeting.

Reserved Matters A list of matters contained in a shareholders’ agreement, a decision in relation to which requires the approval of a certain number or percentage of the shareholders.

Share Buyback The purchase by a company of shares in itself from one or more of its shareholders.

Share Purchase Agreement (SPA) A contract which sets out the terms of the sale and purchase of shares in a company.

Stamp Duty Tax payable on the transfer of shares, typically by the recipient of the shares.

Statutory Registers / Company Books Registers which companies incorporated in England and Wales are required to maintain that contain information relating to the company. The registers include the register of members, register of directors, register of director’s usual residential addresses, register of secretaries and PSC (persons of significant control) register.

Stock Transfer Form A document that is used to transfer ownership of shares in a company and which is provided to the company for the purpose of registering the transfer.

Tag Along A provision allowing certain shareholders (typically minority shareholders) to require other shareholders that are proposing to sell their shares, to procure that an offer is made by the buyer for the purchase of their share too.

TUPE Legislation (specifically the Transfer of Undertakings (Protection of Employment) Regulations 2006) which provides for the transfer of employees by operation of law where a business is transferred to, or continued by, a new owner or operator of the business.

Warranties A statement within a contract which is made by one party (usually the seller) to another (usually the buyer) typically regarding an aspect of what is being sold. If the warranty is breached (i.e. untrue) it allows the recipient of the warranty claim compensation from the person giving the warranty.

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