Sample of Share Purchase Agreement Format

Ashish M. Shaji

08 Feb, 2021

What is the Share Purchase Agreement?

A Share purchase agreement Format (SPA) is a formal agreement between a purchaser of shares in the company and the buyer, laying down the required terms and conditions. This type of transaction shall include the purchase of a part of the company’s operating business.

Upon the transfer of shares as per the agreement’s terms, the ownership shall pass on to the buyer. It shall bring to the buyer a certain amount of control and powers in the target business.

Through a Share Purchase Agreement, the buyer steps in the place of the seller. The other elements of the company- contracts, properties, etc do not alter in any manner. A share sale/ transfer thus involve no third party involvement and thus is a discreet transaction. Also, in share sale/ transfer, the seller gives up the liabilities of his part (of debts of the business) to the buyer.

Who Can Be Parties to the Share Purchase Agreement Format?

SPA may be executed between a single buyer and seller or may be between a single seller and multiple buyers. In case of multiple buyers, if they are companies created only for the purpose of effecting a SPA (or Shell Companies), thus lacking administrative or financial credibility, it is essential to ensure that heads of such companies (or Principals) are made Covenants/Guarantors so as to protect the compensation or payment in cases of non-payment or fraud of any kind.

What are the Advantages of Executing Share Purchase Agreement?

A Share Purchase Agreement Format is a considered to be an essential business practice since a casual approach to such transactions and absence of a legally enforceable agreement can bring about consequences which are not desirable to both parties and those related to the transaction of share purchase/transfer. The SPA ensures that due care is taken while formulating the terms and mentioning the rights and liabilities of the parties.

Some of the advantages are as follows:

1. The Agreement being formally executed for sale of shares makes the transaction legally accurate and organized by clearly laying out the expectations of the parties.
2. Being detailed, they cover all the areas involved in the transaction thus making it unambiguous and reduces the possibility of confusion in the future.
3. It facilitates the companies to maintain a record of shareholders and includes them in the processes of decision making.
4. Such agreements help the appropriate authority to keep track of similar transactions and enforcing them.
5. Such a legal framework protects the rights and interests of both the seller and the purchaser to minimize the risk of getting conned.

What is the Component of a Share Purchase Agreement?

A Share Purchase Agreement Format shall include the following:

1. RECITALS- Though is not legally required, yet mentioned because it lays down the basic context of the agreement
2. The agreement must mention the complete details of the parties, accurately.
3. The number of shares involved in the transaction and any other details of the said shares.
4. The PURCHASE PRICE of the shares as considered to be fair to both the parties.
5. The MODE OF PAYMENT of the purchase price as mutually agreed upon.
6. THE CLOSING MECHANISM- City, Date, Time and the duration within which the procedures be concluded
7. The REPRESENTATIONS AND WARRANTIES of the Buyer/s and Seller-
   • Warranties are contractual statements by the seller made upon the completion serving the purpose of bringing out the information which buyer must be aware of in regard to the shares and companies involved.
   • Any incorrect information furnished may land the parties in the court, thus proper care must be taken.

8. RESTRICTIVE COVENANTS- It may include: a non-solicitation clause, prohibiting the seller from soliciting the buyer’s suppliers/ customer & a non-competitive clause restricting the seller in establishing or engaging in a business which may compete with the buyer; for a set period of time as settled.

• These are particularly of utmost importance to the buyer since the seller can considerably hamper the business with the knowledge acquired of the market. The buyer must take adequate measures to significantly protect himself from any actions of the seller that that may impair business.
• The time mentioned for the restraint must be reasonable for both the parties as per the nature of interest involved.

9. It may set forth the conditions to be fulfilled by both the parties before the execution of the agreement is made. These shall be covered by conditions PRECEDENT. These may be in the form of obligations of the parties, authorizations, permits or permissions to be obtained by the respective parties.
10. CONDITIONS SUBSEQUENT: The agreement also safeguards the parties the future defaults, if made by either. That is if the parties fail to abide by the terms set forth in the agreement, the other party shall have a mechanism to turn to and get the terms enforced.
11. DISPUTE RESOLUTION AND ARBITRATION: An essential clause that deals with the method to resolve the legal disputes which may arise between the parties in the future. Arbitration is always preferred after the parties fail to work around the dispute to reach an amicable solution.
12. JURISDICTION AND GOVERNING LAW: This explains the specific jurisdiction in which the dispute resolution be invoked in case any legal disputes should arise.
13. NOTICE: Where the notices pursuant to the Agreement be delivered.
14. Statement of SEVERABILITY AND BINDING EFFECT of the agreement.
15. There may be a CONFIDENTIALITY CLAUSE if the parties feel the need of such.
16. Waivers, if any applicable.

Common Mistakes While Creating a Share Purchase Agreement

The Share Purchase Agreement Format is such that it requires the expertise of a professional for the reason that it has a variety of implication which may not be apparent at first. The drafting and usage of various provisions and terms required to be unambiguous and shall not put anyone party at loss. It thus is essential that the parties must consult a legal professional as well as an Accountant so as to understand the effect and ramification of the clauses mentioned therein.

It is easy and cost saving for the parties does not having a professional draft the agreement but it must be understood that each transaction is unique and must be dealt with individually. The drafting of the Share Purchase Agreement Format requires a professional view.

Conclusion

If you are purchasing or selling shares in the company with another person or business, use a share purchase agreement. The share purchase agreement format is available in PDF format for download.

Read our article: Sample of Joint Venture Agreement Format