Share Purchase Agreement (SPA)

Overview of Share Purchase Agreement (SPA)

An agreement known as a "Share Purchase Agreement" is made between a buyer and a seller of shares of a target firm. Typically, share purchase agreements state that the buyer will assume all or a large portion of the company's undertakings. In this case, the purchaser would be assuming not only the company's assets but also its liabilities. Therefore, any prospective buyer must properly assess the firm before engaging in such a deal.

The parties should negotiate and prepare a term sheet outlining the essential provisions of the share purchase agreement before actually drafting one. Due to the fact that all important elements would already have been reached between the parties, this would make the writing and negotiation of the share purchase agreement easier

Things to Know

Contents of a Share Purchase Agreement

• Definitions and interpretations
• The parties to the agreement
• Information on the company selling shares
• Purchase price of the shares
• Title
• Timetable for completion
• Warranties
• Restrictions following completion
• Confidentiality requirements

Major Clauses of Share Purchase Agreement

1. The parties to the agreement: Parties to the agreement generally comprise the seller, the purchaser and the Company whose shares are being transferred. In SPA, such parties are referred as covenanters/guarantors/releasors etc at various point in time depending upon the situation.
2. Background :The factual background of the transaction should be clearly given out in the recitals with no errors and ambiguity in identifying and laying down the relationship between the parties, the objective of the transaction, the number and amount of shares being transferred and the role of each of the parties
3. Consideration and sale of shares: At the time of execution of the agreement a detailed structure of sale consideration needs to be mentioned including the, number of shares, the value of shares, the sum that is payable on closing and if applicable, the amount payable in case any security is registered against the company and the pricing formula used for determining the value on case to case basis. If the payments are to be done in tranches, the details of the trigger for the payments should be mentioned in the agreement beforehand.
4. Conditions Precedent and Subsequent: The conditions precedent and subsequent clause should be exhaustively provided for all approvals, authorizations, permissions and permits which are necessary before and after execution of the transaction. The conditions precedent clause should also provide for fulfilling all the representations, warranties, obligations, execution of agreements and covenants specified under the agreement. However, protection must be provided to the purchaser in case any of the conditions subsequent are breached.
5. Closing: The Closing Mechanism should establish the time frame and include a closing memorandum listing the actions that are to take place on closing day including the board resolutions to be passed. A particular line clearly stating that the closing should take place on satisfaction of condition precedents is also recommend.
6. Covenants by the parties: Covenants may be negative or positive and provide a level of security to each of the parties on their past and proposed actions regarding the SPA.  Covenants are also required by the purchaser from the seller regarding interim management of the company.
7. Representations and Warranties: Representations in SPA captures the capital structure of the company including the list of directors and the number of shares and the title of the shares under transaction, the purchaser’s right to contract, purchase and ability to pay the compensation and enter into subsequent agreements, etc should be provided. In addition, this clause contains an affirmation regarding the status of the parties to the agreement. This would ensure the credibility of the information provided from the either parties end.
8. Confidentiality: It is recommended to provide that parties who receive confidential information about the company or other parties to the agreement keep such information confidential, and to provide that they cannot use the information for any purpose that may be prejudicial to the company or the other shareholders.
9. Indemnification: Indemnification clause provides for the limits of liability and the process for reimbursement of indemnity claims and is considered as the most scrutinized clause in case of disputes, therefore, attention has to be paid to ensure that the parties is adequately covered in case of issues relating to the transactions emerge.
10. Dispute Resolution and Arbitration: A share purchase agreement should set out the process for the resolution of any disputes between the parties to the shareholder’s agreement. This could be simply that disputes are referred to the courts under the respective jurisdiction. Alternatively, the Parties can also include the Arbitration Clause in this agreement. Under Arbitration, any dispute that arises between the parties will be referred to an Arbitrator appointed mutually by parties to the agreement. The decision of the Arbitrator will be final and binding on the parties to the Agreement.

Why Companies Next

The validation of a share purchase agreement depends on the person drafting it. But the beauty of the agreement lies in the transaction which governs the agreement. A share purchase agreement is the crown agreement which every corporate lawyer wishes to draft. Companies Next provide online platform to generate well curated Share Purchase Agreement in line with best industry practices, and also provide option to avail customized Share Purchase Agreement. Our team of experts consist of Chartered Accountants, Company Secretaries, and Lawyers who are having rich experience in the field.

• Online process
• Option for customized agreement
• Best in class industry practices
• In line with applicable laws
• Detailed and clear approach