In share transactions, typically during mergers or acquisitions, a contract known as a share retention agreement may sometimes be used. This type of arrangement involves a portion of the shares or the purchase price being held back, often in escrow, for a set period.
Such an agreement provides protection for the buyer by securing funds or shares against potential liabilities. Examples of such liabilities can include breaches of warranties, indemnities, or unresolved claims like tax issues.
Once certain conditions are met, or the retention period comes to an end without any issues, the retained amount will usually be released to the seller.
What terms does a share retention agreement normally include?
Below are some of the common terms that a share retention agreement typically consists of.
It should be noted that this is not an exhaustive list. In any case, the terms need to be tailored to the specifics of the given transaction, such as its size, complexity, and jurisdiction.
- The parties involved
This part of the contract identifies the parties – for example, the buyer, seller, and possibly an escrow agent – and their roles in the agreement.
- The retained amount or shares
Information is included here on the portion of the purchase price or the number of shares that will be retained. This may be expressed as a fixed amount, or as a percentage of the total consideration.
This section also typically states whether the portion will be held in escrow or by means of another mechanism.
- The purpose of retention
This section outlines the specific reasons for the retention.
As we referenced above, there are various justifications that may be put forward, such as to secure warranties, indemnities, tax liabilities, or other post-completion obligations, like pending claims or adjustments.
- The retention period
Details are given here on the duration for which the shares or funds will be held back. A typical timespan will be between six months and several years, depending on the nature of the risks.
- The release conditions
This part of the agreement specifies the conditions under which the retained shares or funds will be released to the seller. For example, the release may occur if the retention period expires with no claims being made, or after the resolution of any outstanding claims or liabilities.
- The governing law and jurisdiction
This can be an important section with regard to whether UK-based process agents will be needed. It states the legal framework governing the agreement – such as English law – and the jurisdiction for dispute resolution.
So, will it be necessary for a UK process agent clause to be included?
It is not automatically the case that UK-based process agents will need to be appointed for any given share retention agreement. However, it may be necessary in certain specific cases.
If, for instance, a cross-border transaction is governed by English law, a party to the contract may be foreign-based and lacking a UK presence, such as a registered office. In this situation, the contract may stipulate a need for the foreign party to appoint a UK-based process agent to receive legal documents or notices on their behalf.
Of course, with any agreement, one always hopes that no disputes will occur between the parties at a later stage. In the event of a dispute coming to pass, however, a UK process agent having been put in place will make it easier, under English court procedure rules, for the foreign party to be served correctly.
Alternatively, both parties to a share retention agreement may have a UK presence, or the contract may not be governed by English law. In these situations, it isn’t typically necessary for UK process agents to be appointed, unless the contract explicitly demands this.
Indeed, it is possible that a given share retention agreement stipulates a UK process agent simply for convenience, particularly if the buyer or escrow agent insists on streamlined legal procedures.
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