A Share Purchase Agreement (SPA) is a legal contract between a buyer and a seller where the seller agrees to sell, and the buyer agrees to purchase, a specific number of shares of a company, usually at an agreed price and under defined terms and conditions.
It is one of the key documents in mergers & acquisitions (M&A) and private equity deals, outlining the rights, obligations, representations, and warranties of both parties.
The SPA formalizes the transaction and ensures that:
The buyer(s) and seller(s), often including company details and roles (e.g., promoters, investors).
The total consideration to be paid for the shares and the payment method (cash, deferred, earnout, etc.).
Specifies how many shares are being transferred and of what type (e.g., equity, preference).
Conditions that must be fulfilled before the transaction can be completed (regulatory approvals, due diligence, etc.).
Assurances provided by both parties about the company’s status, finances, ownership, and compliance.
Obligations on both sides to do or not do something before or after the closing (e.g., non-compete, maintaining business operations).
Protection for the buyer if losses arise due to breaches or undisclosed liabilities.
Conditions under which the agreement can be cancelled before closing.
Specifies which legal system will apply in case of a dispute.
Let’s say Investor A is buying a 20% stake in Company XYZ from Promoter B for ₹10 crore. They will sign an SPA that:
Details the number of shares (say 2 lakh shares)
Specifies the price per share (₹500)
Includes representations by Promoter B about the company’s financials and compliance
Outlines closing procedures and payment schedule
In India, SPAs are commonly used in:
They must comply with laws like the Companies Act, SEBI regulations, and the Foreign Exchange Management Act (FEMA) (in case of cross-border deals).