Forward Stock Purchase Agreement: The Basics
A forward stock purchase agreement, also known as an FSPA, is a legal contract between a buyer and a seller that lays out the terms of a future purchase of company stock. In this agreement, the buyer agrees to purchase a specific number of shares of stock in the company at a predetermined price at a future date.
Why Use a Forward Stock Purchase Agreement?
FSAs can be useful in a number of different situations. One common use case is when a company wants to raise capital from investors but doesn`t want to issue new shares of stock immediately. By using an FSPA, the company can agree to sell a certain number of shares to the investor at a future date, giving them time to prepare for the stock issuance.
Another use case for FSAs is in mergers and acquisitions. In some cases, a buyer may want to purchase a target company`s stock but can`t do so right away for a variety of reasons. By using an FSPA, the buyer can agree to purchase the stock at a later date, giving them time to complete due diligence and secure financing.
What Are the Benefits of Using an FSPA?
There are a number of benefits to using a forward stock purchase agreement. One of the primary benefits is that it allows companies to raise capital without immediately issuing new shares of stock. This can be useful if the company is in need of funding but doesn`t want to dilute the ownership of existing shareholders.
Another benefit of using an FSPA is that it allows buyers to secure a specific price for shares of stock in the future. This can be useful if the buyer expects the price of the stock to increase over time, as it gives them a way to lock in a favorable price.
Are There Any Risks Associated with FSAs?
While FSAs can be a useful tool in certain situations, they do come with some risks. One of the biggest risks is that the price of the stock could decrease between the time the FSPA is signed and the time the shares are purchased. This could result in the buyer being required to purchase shares at a price that is higher than the current market value.
Another risk is that the seller may not be able to deliver the shares of stock as agreed upon in the FSPA. This could be due to a variety of reasons, such as the seller going bankrupt or the shares being subject to legal restrictions.
In Conclusion
Forward stock purchase agreements can be a useful tool for companies looking to raise capital or for buyers looking to purchase shares of stock at a future date. However, they do come with some risks that should be considered before entering into an agreement. As always, it`s important to consult with legal and financial professionals before entering into any type of investing or financing agreement.