Share purchase agreement (SPA)

A share purchase agreement sets out the terms for selling a company by transferring its shares instead of its individual assets. The seller’s corporation keeps operating exactly as it did before, just under new ownership. Because the buyer inherits the whole corporate entity, an SPA usually does far more work than a simple bill of sale.

What a share purchase agreement covers

• Purchase price, adjustments, and how and when payment is made
• Representations and warranties about the business, its finances and its liabilities
• Conditions that must be met before closing, such as third-party consents
• Indemnities that allocate risk for problems discovered after closing
• Restrictive covenants, such as non-competition and non-solicitation terms

Why share deals need more protection than asset deals

In an asset purchase, the buyer picks which assets and liabilities to take on. In a share purchase, the buyer takes the whole corporation, including liabilities the buyer may not know about, such as unpaid taxes or pending claims. That is why SPAs lean heavily on representations, warranties and indemnities to shift risk back to the seller where appropriate.