A share purchase agreement is a contract for the sale of shares in a company. It identifies the shares, price, payment terms, closing requirements, and protections negotiated by the buyer and seller.
Key Takeaways
- SPA can mean share purchase agreement or stock purchase agreement in an M&A transaction.
- The buyer acquires shares in the company, not selected business assets.
- The company generally keeps its existing assets, contracts, debts, and other liabilities.
- Common provisions address price, warranties, disclosures, indemnities, covenants, and closing conditions.
- Signing and closing can occur together or at different times.
- A template provides a starting structure but cannot account for every company's risks or negotiated terms.
What Is a Share Purchase Agreement?
A share purchase agreement, commonly abbreviated as SPA, records the terms under which one or more shareholders sell shares to a buyer. In a private company transaction, it is often the principal contract governing the acquisition. The agreement may cover all outstanding shares, a controlling interest, or a smaller ownership stake.
In an M&A context, SPA may mean either share purchase agreement or stock purchase agreement. The terms generally describe the same basic transaction: a buyer purchases an ownership interest represented by company shares or stock. Usage often depends on jurisdiction, company terminology, and the drafter's preference. A sale and purchase agreement is a broader label that may refer to a share sale, asset sale, or another transaction, so you must read the document to identify what is actually being transferred.
A share purchase does not normally transfer each company asset separately. Instead, ownership of the company changes while the company continues to own its property, operate its business, and remain responsible for its obligations. That continuity makes the company's historical liabilities especially important to the buyer.
The SPA converts the parties' commercial agreement into binding terms. It states what the seller must deliver, what the buyer must pay, which facts each side confirms, and what remedies may apply if those commitments prove inaccurate. For a broader overview of how purchase contracts work, see this explanation of a purchase agreement and its core requirements.
Share Purchase Agreement vs. Asset Purchase Agreement
The main distinction is what the buyer acquires. In a share deal, the buyer purchases ownership of the legal entity. In an asset deal, the buyer purchases specified assets and may agree to assume selected liabilities. A buyer cannot treat an SPA as a shortcut for choosing individual equipment, contracts, or intellectual property while leaving the company behind.
| Issue | Share Purchase | Asset Purchase |
|---|---|---|
| What transfers | Specified shares or stock in the company | Assets listed in the agreement |
| Liabilities | The company retains its existing liabilities, creating indirect exposure for the buyer | The agreement identifies liabilities the buyer assumes, subject to applicable law |
| Contracts | Contracts usually remain with the same company, although change-of-control terms may require consent | Contracts may need to be assigned, and consent may be required |
| Ownership continuity | The legal entity continues under new or changed ownership | The seller keeps its entity unless it is separately dissolved or reorganized |
| Due diligence focus | Company-wide financial, tax, employment, contractual, regulatory, and litigation risks | Title, condition, transferability, and liabilities connected to the selected assets |
The best structure depends on the commercial objective, tax treatment, required consents, risk allocation, and applicable law. Buyers may prefer an asset deal when they want only part of a business or wish to avoid certain obligations. Sellers may prefer a share sale because it transfers ownership of the entity as a whole. A separate business purchase agreement may be relevant when the transaction is structured around the broader sale of a business rather than a straightforward transfer of shares.
What Does a Share Purchase Agreement Cover?
An SPA should identify the exact transaction and turn the agreed economics into workable obligations. The provisions vary with the company, ownership structure, due diligence findings, and bargaining position of each party.
| Clause | What It Addresses |
|---|---|
| Definitions | Assigns consistent meanings to important terms, dates, financial measures, and standards. |
| Parties | Identifies each buyer, seller, guarantor, or other person undertaking obligations. |
| Share details | States the class, number, ownership, and rights associated with the shares. |
| Price and adjustments | Sets the price and any working-capital, debt, cash, or other adjustment method. |
| Payment terms | Covers deposits, closing payments, deferred consideration, escrow, or earn-outs. |
| Conditions precedent | Lists approvals, consents, financing, or other events required before closing. |
| Representations and warranties | Records factual statements about authority, ownership, finances, contracts, employees, taxes, compliance, and other matters. |
| Disclosures | Identifies exceptions to the seller's representations and warranties. |
| Covenants | Controls actions before closing and creates continuing promises after closing. |
| Indemnities | Allocates responsibility for defined losses, breaches, or identified risks. |
| Restrictive covenants | May limit specified competition, solicitation, or interference after closing, subject to applicable law. |
| Confidentiality | Controls transaction information, announcements, and permitted disclosures. |
| Dispute resolution | Establishes the agreed process and forum for resolving claims. |
| Governing law | Identifies the law used to interpret the agreement. |
Other schedules may list sellers, capitalization, completion documents, warranties, and specific disclosures. If the seller holds an interest through an LLC rather than corporate shares, the structure may instead call for an LLC ownership purchase agreement.
From Letter of Intent to Signing and Closing
A transaction commonly begins with preliminary discussions and a letter of intent or term sheet. That document may outline the proposed price, structure, exclusivity period, confidentiality duties, and intended timetable. The parties should compare the final SPA with those terms because due diligence and negotiations can change the deal.
- Initial terms: The parties identify the shares, valuation, payment structure, required approvals, and major risk issues.
- Due diligence: The buyer reviews corporate records, capitalization, finances, taxes, contracts, employees, intellectual property, disputes, and compliance matters.
- Drafting and disclosure: The SPA is drafted while the seller identifies exceptions to the proposed warranties. Due diligence findings may produce a price change, indemnity, closing condition, or revised transaction structure.
- Negotiation: The parties negotiate warranties, liability limits, payment certainty, covenants, restrictive provisions, and closing deliverables.
- Signing: Authorized parties execute the SPA. Signing creates the contractual commitments but does not always transfer the shares immediately.
- Conditions and closing: The parties satisfy required approvals, consents, financing terms, or other conditions. At closing, they exchange the purchase funds, transfer documents, certificates, approvals, and company records required by the agreement.
- Post-closing work: The parties address ownership records, deferred payments, earn-out reporting, transition support, claims, and other continuing duties.
Signing and closing may occur on the same day when no conditions remain. They may also be separated by weeks or longer if the transaction requires regulatory approval, third-party consent, financing, or another specified event. The SPA should explain who must pursue each condition, how the business operates during the interim period, and what happens if closing does not occur.
Buyer and Seller Review Priorities
Buyers and sellers review the same document from different risk positions. A buyer should confirm that the seller owns the shares, has authority to transfer them, and can deliver them without undisclosed third-party rights. The buyer should also determine whether the company's actual liabilities match the assumptions used to value the deal.
Buyer protections often include detailed representations, carefully prepared disclosures, targeted indemnities, purchase-price adjustments, escrow arrangements, and conditions tied to material approvals. The buyer should test financial formulas with examples instead of assuming that a defined term will produce the intended result. Earn-outs also require clear measurement rules, access to information, accounting policies, and dispute procedures.
A seller usually focuses on price certainty, payment security, the accuracy and scope of warranties, and limits on post-closing exposure. Relevant limits may include financial caps, claim thresholds, time periods, exclusions, and notice procedures. A seller should make complete and accurate disclosures rather than relying on general statements. The seller should also review restrictive covenants and any continuing transition, confidentiality, or cooperation obligations.
When the parties are choosing a deal structure, negotiating warranties or indemnities, responding to due diligence, or adapting a template, you can post your legal need on UpCounsel's marketplace. An attorney can draft or review the SPA, coordinate disclosures and closing conditions, identify conflicts between the letter of intent and final documents, and negotiate the allocation of known and unknown risks. Responses typically arrive within a day.
Can You Use a Share Purchase Agreement Template?
A share purchase agreement template can help you identify common headings, organize deal points, and prepare questions for the other party. Word or PDF format does not determine whether a document fits the transaction. The substance, jurisdiction, parties, company records, and execution requirements matter more than the file type.
Publicly filed agreements available through the SEC's EDGAR system can also show how parties organize definitions, warranties, covenants, indemnification, and closing provisions. These agreements document specific negotiated transactions. They are not official model forms, and their provisions may reflect public-company reporting requirements, unusual bargaining positions, or deal-specific risks that do not apply to your sale.
Before using any sample, confirm the seller's legal ownership, the company's capitalization, the exact class and number of shares, applicable transfer restrictions, required corporate approvals, and third-party consent requirements. Replace every placeholder and check all schedules, cross-references, defined terms, formulas, and dates. A document that leaves schedules blank or uses inconsistent definitions can create uncertainty even if its main clauses appear polished.
A simple transfer between informed parties may need fewer provisions than the acquisition of a company with employees, debt, intellectual property, regulated operations, or historical tax exposure. Templates also cannot decide which risks deserve an indemnity, how liability should be capped, or how due diligence findings should affect price. Use a template as a drafting aid, not as proof that the transaction is properly structured.
Related Agreements in an Ownership Change
A share purchase agreement governs the actual sale of shares, but other ownership agreements serve different purposes. More than one document may apply to the same transaction.
A shareholders agreement governs the continuing relationship among the company's shareholders. It may address voting, board rights, information access, transfer restrictions, future financing, dispute procedures, and exit rights. If the buyer acquires only part of the company, the buyer may need to join an existing shareholders agreement or negotiate a replacement in addition to signing the SPA.
A buy-sell agreement, sometimes called a buy-out agreement, establishes when an owner must or may sell an interest and how the purchase will occur. It may apply after death, disability, retirement, termination of employment, deadlock, or another defined event. The buy-sell agreement may create the right or obligation to purchase, while a later SPA documents the specific transfer. For transactions funded or completed among co-owners, review how a cross-purchase buy-sell arrangement operates.
Corporate documents may also restrict transfers or require approval. These can include articles or certificates of incorporation, bylaws, existing investor agreements, rights of first refusal, voting agreements, option plans, and lender documents. The parties should reconcile those requirements with the SPA before signing.
Finally, an assignment agreement is not automatically a substitute for an SPA. Assignment may transfer contractual rights, but shares must be transferred under the rules applicable to the company and transaction. If a party wants to transfer its rights under an existing purchase contract, an assignment of a purchase agreement may be relevant, subject to the original agreement's restrictions.
Frequently Asked Questions
What Does SPA Mean in M&A?
SPA usually means share purchase agreement or stock purchase agreement in an M&A deal. Because the abbreviation can also appear in other commercial contexts, confirm the definition section and transaction description. The document's operative provisions should establish whether the buyer is acquiring company shares, selected assets, or another interest.
Can I Write My Own Purchase Agreement?
Yes, you can prepare your own purchase agreement, but doing so does not ensure that it is complete, enforceable, or appropriate for the deal. At minimum, verify party names, authority, ownership records, transfer restrictions, consideration, approvals, signature requirements, and governing law. Legal and tax review can uncover consequences that a general template will not address.
What Is a Buy-Out Agreement?
A buy-out agreement sets rules for one owner or the company to purchase another owner's interest after specified events. The term is not always used consistently, so examine its triggers, valuation method, funding mechanism, payment schedule, and transfer procedure. Life insurance, installment payments, or other funding arrangements may require separate documents.
Is a Shareholders Agreement Legally Required?
A shareholders agreement is generally not required merely because a company has multiple shareholders, but requirements vary by jurisdiction and company structure. Formation documents, bylaws, securities terms, or investor commitments may create related obligations. Even when optional, an agreement can establish decision-making and transfer rules that default corporate law or informal understandings do not resolve.
Who Usually Prepares the First Draft of an SPA?
The buyer's counsel often prepares the first draft in a negotiated private sale, while the seller may provide the draft in an auction or seller-controlled process. Drafting responsibility does not determine the final terms. Each side should review every provision, schedule, and disclosure based on its own interests rather than treating the first draft as neutral.
Can an SPA Cover Only Part of a Company's Shares?
Yes, an SPA can cover a minority stake, a controlling block, or all of a company's shares. A partial acquisition may require additional attention to voting power, board representation, information rights, dilution, transfer restrictions, and relationships with remaining owners. The percentage purchased does not by itself establish the buyer's practical level of control.
