Share Purchase Agreement 101

Written By:
Vishnu Boorla
August 17, 2023
 Share Purchase Agreement 101

As discussed in earlier blogs secondary transactions of private companies finalize the transaction by signing a Share Purchase Agreement (SPA). After identifying the appropriate company and willing seller, the agreement becomes a crucial document in the buying process. It is a binding contract between the investor(s) looking to purchase shares in a private company and the existing shareholder(s). The SPA is a legally enforceable agreement outlining the share sale's terms and conditions. In this blog, let's delve into the detailed explanation of SPA and its key components.

While the companies are governed by the AOA (Articles Of Association), Shareholders Agreement (SHA) is a comprehensive definitive agreement entered into by shareholders and the company and outlines the rights, preferences, and obligations of all the shareholders. Refer to this blog series for a detailed explanation on SHA. A Share Purchase Agreement (SPA) is executed between parties when one party is buying or ‘purchasing’ shares from existing shareholders.

Share Purchase Agreement (SPA) is a legal document signed between an investor wanting to buy shares in a private or public unlisted company from existing shareholder(s). SPA is a legally enforceable document that sets out the terms and conditions of the sale and purchase of shares between the two parties. It includes the number of shares, the price of shares, the completion procedure, conditions precedent, warranties, representations and other details of the transaction. The SPA outlines the terms and conditions of the share sale and purchase, serving as a crucial legal instrument to protect the interests of both parties involved in the transaction.  

The key components of a Share Purchase Agreement include:

Parties of the Agreement:  

Usually, any SPA starts with describing the parties involved in the agreement and their relationships. The parties in a typical share purchase agreement would be the seller and the purchaser. The parties to this agreement may also be company at times to ensure that the claims post the closing of the agreement are made and the promises made in this agreement are kept.

Sale of Shares and Consideration:  

The complete payment structure of the transaction is outlined, including the deposits to be paid at the time of execution, sum payable on closing and, if applicable, the sum to be held in an escrow to be set off against indemnities or breaches of representations and warranties, as well as the amount payable if any security is registered against the property.  

This section specifies the total number of shares being sold by the existing shareholder(s) to the investor(s). And the agreed-upon price per share or the total consideration amount to be paid by the investor is mentioned.  

Definitions and Interpretation:

Definitions provide the necessary context and meaning to specific words and phrases used in the agreement. A definition is ideally limited to the meaning of the term and should not include any covenants that are intended to be included only in the main text. Typically, defined terms are listed alphabetically at the beginning of the share purchase agreement or in a separate annexure to the share purchase agreement. Terms are sometimes defined in the place where they first appear in the share purchase agreement. The most common way to distinguish a defined term from a common word is to capitalise it and treat it as a proper noun. Definitions may be either inclusive or exclusive.  

The interpretation clause is used to reduce repetition within an agreement’s body and make it easier to read. It also provides context for specific words used in the agreement. Although much of the interpretation section of a share purchase agreement is standard, it can still contain useful and significant pointers for reading the agreement.  

Conditions Precedent:

These are specific conditions that must be met before the share sale can take place. These conditions may include regulatory approvals, due diligence satisfaction, or any other mutually agreed-upon requirements.

Conditions Precedent are all actions that must be carried out by both the parties before the actual transaction of sale of shares occurs. For the seller, these conditions culminate out of the due diligence carried out by the buyer. The buyer generally does not have any conditions precedent which need to be performed by them, however, it depends on a case-to-case basis and on the mutual agreement of the parties.

Conditions precedent clause is however very important from the buyer’s perspective. These are those conditions which are necessary to be carried out before the transfer of shares takes place. For example, a lender of the company may have placed a restriction on the sale of shares, which would have to be resolved with the lender before such a transaction goes forward. Further, depending upon the business of the company, approvals, authorizations, permissions, etc. may also be needed from third parties. This is just a general summation and would actually depend on a case-to-case basis and the due diligence carried out.

The party would inform the other party upon completion of these conditions, post which, the parties would go forward with the sale. If these actions are not carried out within the specified time period or to the other party's satisfaction, the other party may seek termination of the Share Purchase Agreement due to lapse of time.  

Completion Procedure:  

This section outlines the process and timeline for the completion of the share transfer. While subject to fulfilment of Conditions Precedent, the completion procedure outlines the time frame, location and the actions (some of the documents exchange etc.) to complete the share transfer.  

Warranties and Representations:  

This section covers warranties and representations provided by the seller, ensuring that the information about its shares is accurate and reliable. This section safeguards the buyer's interests by minimizing potential risks and uncertainties associated with the purchase. Both the seller and the buyer provide warranties and representations about the accuracy and completeness of information related to the company and the shares being sold. These ensure transparency and minimize risks associated with the transaction.

The corporate status of the company, as well as its good standing in the market, is clearly stated. The company’s capital structure, including a list of directors and the number of shares owned by the vendor, are provided. This section also includes an affirmation of the seller’s title and rights to the company’s shares/property, the status of compliance with the law, any pending or threatened litigation or dispute, information on loans and related agreements, and the fairness of accounts and financial and other information provided by the seller.  


This section of SPA includes the provisions for indemnification by one party to compensate the other party for any losses, damages, or liabilities arising from certain specified events. Indemnification clauses are hotly contested, particularly the lower and upper claim threshold limits, time-period, subject matter, and the procedure between the parties for dealing with disputes, including tax disputes that affect claims. They also provide the process for reimbursing claims and are frequently the most scrutinized clause in the event of a dispute, so special care must be taken to ensure that the purchaser is adequately covered in the event of issues relating to the company prior to the transaction but arising post-closing. This is also why a purchaser will require a substantive party from the seller’s side to act as a guarantor for indemnification.

Confidentiality and Non-Disclosure:  

In this section of agreement contains clauses to maintain confidentiality regarding the transaction and sensitive information shared during the process. This becomes even more important when parties exchange sensitive information, which can cause considerable damage to either of the parties, and any such information cannot be disclosed without the consent of the other party. Usually, such clauses have a time period to adhere to.    

Governing Law and Arbitration:  

This section of SPA specifies the governing law and the jurisdiction where any potential disputes will be resolved. This includes the type of disputes covered by this clause, the method of dispute the parties wish to resolve – mediation, arbitration, or litigation, and venue for dispute adjudication. Including the laws of the land to apply, and the courts in the city of the seller’s registered office for jurisdiction.  

Miscellaneous Provisions  

This section of the SPA contains additional provisions not covered elsewhere. It emphasizes that a party's failure to enforce a provision doesn't relinquish their right to do so later, and waivers don't extend to future breaches. Parties have cumulative rights and remedies enforceable through different legal avenues. If a provision is deemed invalid, the rest of the agreement remains unaffected, with replacements aligning with the original intent. The agreement's terms require written modifications and waivers, while also outlining confidentiality, cooperation, and electronic execution procedures.

Also Read: Demystifying Unlisted Shares: Everything You Need to Know


A well-drafted Share Purchase Agreement plays a crucial role in establishing clarity and trust between the parties involved in the share transfer, safeguarding their interests, and providing a legally enforceable framework for the transaction. The Share Purchase Agreement (SPA) emerges as a pivotal cornerstone in the landscape of private company transactions. By meticulously delineating the terms, conditions, and obligations of share sales, the SPA establishes a robust legal framework that safeguards the interests of both investor and existing shareholder. Through its well-structured components, ranging from defining parties and sale details to delineating conditions precedent and indemnity provisions, the SPA ensures clarity and transparency throughout the transaction process. The inclusion of warranties, representations, and confidentiality clauses fortifies the agreement against potential risks and uncertainties, promoting a foundation of trust between the involved parties. Moreover, the selection of governing law and arbitration provisions positions the SPA as a tool not just for agreement but also for conflict resolution, bolstering its effectiveness. Ultimately, a proficiently drafted SPA does more than merely facilitate share transfer; it fosters an environment of legal certainty, strategic alignment, and equitable exchange, ultimately culminating in a successful and mutually beneficial transaction for all parties involved.

Vishnu Boorla

A seasoned professional with over 20 years of experience in the software industry, now making significant strides in the fintech realm. Passionate about transforming ideas into impactful products that drive growth and value. Leading the product at Qapita Marketplace, specializing in liquidity programs for ESOPs and early-stage investor transactions in private companies. Pioneered and successfully rolled out marketplace products facilitating secondary transactions for private entities. Always enthusiastic and willing to share and help develop ideas. Natural leader who communicates excellently from developer to board level. Fintech Innovation | Product Strategy | Liquidity Programs | Secondary Transactions | Team Leadership | Geospatial Specialist |

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