Share Purchase Agreement: The Basics
What is a Share Purchase Agreement?
A Share Purchase Agreement (SPA) is a contract to transfer ownership shares or stock in a business. It is used in a business acquisition instead of an Asset Purchase Agreement (APA).
What are the main provisions of a Share Purchase Agreement?
- Sale of Assets
- Purchase Price and Allocation
- Due Diligence
- Representations and Warranties
- Indemnification
- Closing
- Closing Deliveries
- Conditions Precedent to Closing
- Default
- Restrictive Covenants
- Miscellaneous Provisions
What is the difference between an APA and SPA?
APA’s transfer ownership of assets to the buying company. In an SPA, the buyer steps into the shoes of the seller, assuming the assets and all debts, liabilities, and contracts.
An Asset Purchase Agreement is frequently used in mergers and acquisitions, and is often preferred over Share Purchase Agreements. APA’s reduce the liability of the buyer by either not assuming liabilities / contracts, or limiting that assumption to a known amount. Buyers in an SPA assume all known and unknown risks, and must rely heavily on due diligence.
APA’s also have tax advantages for buyers. The purchase price allocated to the specific assets becomes the buyer’s basis in those assets, including goodwill. This basis can be depreciated or amortized to create tax deductions. In an SPA, the purchase price of the shares cannot be depreciated, and the purchase price is not allocated to depreciable assets because the target company remains the owner of the assets.
Who prepares the SPA?
The party with the most bargaining power typically provides the first draft of the Share Purchase Agreement. Providing the first draft gives a party the opportunity to draft the agreement in that party’s favor. The receiving party can try to revise the agreement, but the drafting party will leverage their bargaining power to limit the amount of changes, keeping the agreement in their favor.
What is the difference between an SHA and an SPA?
A Shareholder Agreement (SHA) is the agreement between shareholders of a business. It outlines the rights and obligations of the shareholders. For example, an SHA will address voting rights, capital contributions, shareholder meetings, and transfer of shares. An SHA may provide the circumstances leading to a sale of shares, but the SPA is what effectively transfers the shares.
About
Attorney Collier started his own law firm straight out of law school and has been practicing law in Ohio for 5+ years. During that time, Joe focused on business law and litigation, gaining some exposure to intellectual property law. While running his firm in 2021, Joe decided to go back to school and get his patent license. Since then, Attorney Collier has been focusing on protecting innovators and entrepreneurs through his expertise in intellectual property and business law.