Key words business and commercial Flashcards
(78 cards)
Share purchase agreement/sale and purchase agreement (SPA)
the contract which binds sellers and buyers in a transaction - it is the legal contract that describes the outcome of key commerce and pricing negotiations. When singed, it obligates the buyer to buy and the seller to sell. SPA can be used to purchase either the asset or the shares. when you are buying shares it is a share purchase agreement, when buying assets it is sale and purchase agreement
Loan Agreement
main document in transactions involving one party barring from another. may also be called facility agreement or credit agreement. the point is to record the terms that govern the lending/borrowing e.g. value, interest, tenor (duration) and other contractual protections.
What are the 4 stages of contract?
Offer > acceptance > consideration > intention
What is a warranty
statement of existing fact
what is an undertaking
promise to take certain action in the future
what is an indemnity
promise to reimburse the other party if certain costs arise
What does it mean to Provide a product on credit and inclusion of retention clause
payment not required until future date but if buyer goes bankrupt before the due date of payment the supplier can retrieve the item. there is retention of title clause ensured that title to goods remains vested in the seller until the buyer fulfils certain obligations (typically payment of price). If the buyer is declared bankrupt before paying seller can retrieve goods from the liquidator (so basically a qua jumping provision vis a vis all other potential creditors)
force majeure clause =
can protect if something unexpected happens preventing parties from fulfilling obligations. predetermines allocation fo risk and free each part from liability if specified circumstances arise the are beyond he control of the parti and prevent them from fulfilling their obligations e.g. strike, riot, war, panny etc.
breach?
f you breach you pay (usually) to put everyone back in as good a position as if the contract was not breached - so refund plus compensation for costs incurred
Security =
form of protection for lenders. it is typically right given by a borrower to a lender which entitles the lender to take control of some or all of the borrowers assets if the borrower fails to repay the loan as agreed. then the lender can sell these to try to repay itself.
enforcing security =
taking control of assets and selling on default. if the right to sell is invoked, excess proceeds must go back to the other party.
Syndicated loan =
where borrowers need to raise large amounts of money, lenders ‘syndicate’ (group together) and collectively produced the required capital. doing so enables lenders to spread the risk and collectively lend am aunts that each individual lender may be prohibited from lending by their internal credit committees. each lender receives a share of interest payments.
Fixed charge/mortgage =
if a loan has not been repaid in accordance with agreed terms, fixed charge (or mortgge) can give a lender the legal right to claim and sell the secured assets in order to recover the funds loaned out. A borrower cannot usually sell assets that are subject to fixed charges without the lenders consent, so fixed charges will not usually abs suitable for assets such as stock (which exist to be traded). mortgages and fixed charges are not entirely the same
secured assets =
assets over which the borrower has granted security to the lender. e.g when a bank lends money to the purchaser of a house, the house is typically the secured asset.
Floating charge =
floating charges operate in a similar manner to fixed charged but are different int hat the assets over which floating charges are taken can be freely sold unless the floating charge “crystalises.” The parties can agree in advance the circumstances under which a floating charge will “crystallise” and these circumstances will usually include the borrower becoming insolvent. the ability to sell the assets makes these suitable for asset classes which would be commercial impractical for a borrower to relinquish stock to a lender (e.g. stock or cash). floating charge provides less protection to lenders bc floating charge will not be repaired in the event of insolvency until other parties are paid first (those with better title will be further ahead in the que e..g fixed charge holders, liquidator, unpaid employees)
Liquidator =
a party often appointed when business becomes insolvent. its job is to collect money owed to bankrupt business, sell its assets, distribute the sale proceeds/remaining cash to creditors
what are the differences between the benefits of security
control and priority
what are the issues with taking security?
expensive, some corporate borrowers are restricted from granting security over assets e.g. bc of their constitutional docs or agreements with other lenders or assets are perishable and finally, certain types of security have to be registered.
define insolvency
Comp is insolvent if it cannot pay debts on time, or when liabilities exceed assets.
how can you avoid insolvency?
Renegotiate terms of the loan - get more time to repay the loan
Raise additional finance - comp should, where possible, avoid taking on additional debt as this could make the comp less financially stable. Issuing new shares could provide a more viable source of additional finance if demand for the company’s shares still exists (which may be unlikely)
Monitoring profitability and improving cash flow: every effort should be made to improve profitability, including cost cutting and undertaking regular and thorough reviews of the companies business plan/objectives/accounts. Directors should try to improve cash flow, perhaps by trying to extend credit periods with existing suppliers so that comp will have longer to pay for supplies or finding cheaper alternatives - customer debts could also be collected more effectively and dividend payment could be temporarily suspended.
Turnaround specialists - directors could also consider consulting with turnaround specialists who are responsible for helping companies to recover from financial difficulties.
what are the types of barriers to entry when starting a business
financial, complicated or restrictive regulation, inability to compete against established competitors; various risks and uncertainties and a lack of resources.
Profit margin =
amount of profit generated per item after deducing the average cost of producing each item
Revenue =
total income generated from a firms operations within a period of time this does not take into account costs, just money received from sales.
Fixed costs =
costs that don’t directly relate to each individual sale e.g. rent pad for office or factory, utilities, fuel for a flight, these costs remain the same whether you sell 1 or 1000 units.
