Share Purchase Agreement
A share purchase agreement governs the sale and transfer of shares in a company, including price, conditions precedent, representations, and completion mechanics.
What is a Share Purchase Agreement?
A share purchase agreement (SPA) is the primary legal document for the acquisition of shares in a private company. It records the agreed purchase price, specifies the conditions that must be satisfied before completion, sets out the warranties and representations given by the seller about the company, and defines the mechanics of settlement.
Unlike an asset purchase, a share purchase transfers ownership of the company itself — including all its liabilities, contracts, and obligations. This makes warranties and due diligence particularly important in share sale transactions, as the buyer is acquiring everything the company has, including anything that has not been disclosed.
When do you need a Share Purchase Agreement?
- ✓When an investor is acquiring a minority stake in a private company
- ✓When a founder or early shareholder is selling their shares to a new investor
- ✓When acquiring a company outright through a share purchase
- ✓When an employee is exercising options under a share option plan
- ✓When a buyout (management or external) is being structured
Key provisions to include
Purchase Price & Consideration
Sets the price per share, total consideration, and payment mechanics (cash, earnout, stock swap).
Conditions Precedent
Events that must occur before completion, such as regulatory approvals or third-party consents.
Seller Warranties
Representations about the company's financial position, compliance, IP ownership, and absence of undisclosed liabilities.
Completion Mechanics
What happens on the settlement date, including share register updates, director changes, and fund transfers.
Limitation of Liability
Caps on the seller's liability for warranty claims, including time limits and minimum claim thresholds.
Post-Completion Restrictions
Non-compete and non-solicitation obligations on the seller following completion.
Common mistakes to avoid
Not conducting thorough due diligence before relying on seller warranties — warranties are not a substitute for investigation
Failing to negotiate adequate warranty coverage for tax liabilities and undisclosed contingent claims
Not including a material adverse change condition that allows the buyer to withdraw if the business deteriorates before completion
Accepting overly broad limitations on seller liability that leave the buyer without adequate recourse for warranty claims
Frequently asked questions
What is the difference between a share purchase and an asset purchase?
A share purchase acquires ownership of the company itself, including all assets and liabilities. An asset purchase acquires specific assets of the business. Share purchases are simpler but transfer all existing liabilities. Asset purchases allow the buyer to choose which assets and liabilities to take on.
Are seller warranties negotiable?
Yes. Warranty negotiations are a key part of SPA due diligence. Sellers seek to limit warranty scope, the disclosure process, liability caps, and claim notification periods. Buyers seek broad warranties with limited exclusions, higher caps, and longer notice periods.
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