344 10 Exit of Shareholders
for private-equity firms to sell their holdings to a competitor. Secondary or even
tertiary buy-outs can be an alternative to an IPO or a trade sale.
Private sale, trade sale, governing law, caveat emptor. In a private sale, the
most important questions that the shareholder will need to address include: the
price; responsibility for the quality of the shares; and information. Information
will influence the price that the buyer will be prepared to pay for the shares, the
terms on the responsibility of the seller for the quality of the shares, and the distri-
bution of risk between the parties generally. A private sale of shares can enable
the parties to combine a high level of financial and legal due diligence by prospec-
tive purchasers with a high level of vendor due diligence.
The private sale of shares raises many legal questions (which will be discussd
in Chapters 10–11 in more detail). (a) The transaction can be structured in differ-
ent ways. There is an important distinction between private sales between two par-
ties and auction sales. (b) The initiator of the sale can choose the acquisition proc-
ess. There is a typical acquisition process consisting of a typical order of events
and documents (preliminary agreements, due diligence, drafting of acquisition
agreements, signing, disclosure, closing). (c) The acquisition agreements contain
typical terms on disclosure, warranties and indemnities. (d) Consideration for
shares or assets can be structured in different ways. (e) The general structure of
the transaction and the way consideration is structured influence the form of ac-
quisition finance.
The law governing the contractual obligations between the parties is deter-
mined by the Rome I Regulation.^74 In the absence of choice, the governing law
would usually be that of the seller’s home country.^75 However, depending on the
circumstances, the parties may be deemed to have chosen the law of another coun-
try,^76 or the contract as a whole may be deemed to be most closely connected with
another country.^77 In practice, many connecting factors link the contract with the
country in which the company is incorporated. In order to avoid uncertainty, the
parties virtually always choose the governing law.
The private sale of shares will be governed by the national provisions of law
applicable to the sale of goods or the sale of rights. It will not be governed by the
provisions of the CISG.
The sale of shares will not be governed by the CISG, because the CISG does not apply to
sales “of stocks, shares, investment securities, negotiable instruments or money”.^78 Neither
does it apply to sales “by auction”.^79
(^74) See Articles 24(1) and 28 of Regulation 593/2008 (Rome I). The 1955 Hague Conven-
tion on the Law Applicable to International Sale of Goods does not apply to “sales of
securities”. Article 1(2) of the Convention.
(^75) See Article 4(2) of Regulation 593/2008 (Rome I).
(^76) Article 3(1) of Regulation 593/2008 (Rome I).
(^77) Articles 4(3) and 4(4) of Regulation 593/2008 (Rome I).
(^78) CISG Article 2(d).
(^79) CISG Article 2(b).