What is a share purchase agreement and how does it work when buying a business?

A share purchase agreement is the contract in which you buy the shares of a company from its shareholders, rather than buying the business’s assets one by one. The business stays in the same corporation. BDC notes that purchasing shares comes with a very different set of responsibilities compared to purchasing assets, so how a deal is structured changes what you are taking on. This page covers how the share version works.

What you are actually buying

The Saskatchewan Workers Compensation Board, explaining how a sale affects an employer’s account, describes a share sale as one where the assets and liabilities of a company remain with that corporation. It adds that the seller walks away from any liabilities and the purchaser takes them on. Because the liabilities stay with the company you are buying, ask what it owes and what claims it faces before you sign.

Promises and compensation

A purchase agreement sets out representations and warranties, which are the seller’s statements about the business, and the indemnities that apply if they turn out to be wrong. BDC gives the example of a vendor who discloses two lawsuits when there are five, and asks what compensation the vendor must pay. BDC also says the seller is not liable for misrepresentations forever and that liability is typically capped. Check how long the seller stays liable, and any cap, in your draft.

Shares, registers and shareholder rights

Under the Canada Business Corporations Act, which applies to corporations incorporated or continued under it, a corporation must maintain a securities register in which it records the securities it has issued in registered form. Ask how the closing will update that register. The Act also says that, subject to its exceptions, a requirement in the articles or a unanimous shareholder agreement for a greater number of votes than the Act sets prevails. Ask for the articles and any shareholder agreement before you sign, because they may limit what you can do with the shares. A company incorporated under a provincial statute follows that statute instead.

Where to read next

For the clause-by-clause contents of a purchase agreement in general, see What should be in a business purchase agreement?.