Buying or selling shares in a company sounds simple on paper — money changes hands, shares change owners. In practice, it's one of the riskiest transactions a business can enter into without proper documentation, because the buyer isn't just acquiring shares; they're stepping into whatever the company already owns, owes, and is liable for. The Share Purchase Agreement (SPA) is the document that decides who bears that risk, and how much protection each side actually has once the deal is signed.
This guide breaks down what an SPA actually covers, the clauses that matter most, and where most first-time drafts go wrong.
A Share Purchase Agreement is a legally binding contract between a buyer and a seller (or sellers) for the transfer of shares in a company, known as the target company. It sets out exactly how many shares are being transferred, at what price, under what conditions, and what happens if either side's promises about the company turn out to be untrue.
Unlike simply transferring shares through a form, an SPA is where the real negotiation lives — pricing mechanisms, protections against hidden liabilities, and what recourse a buyer has if the company's financials or legal position aren't what they were told.
This distinction trips up a lot of first-time buyers. In a share purchase, the buyer acquires the company itself — including its existing contracts, employees, licenses, debts, and any pending litigation, because the company as a legal entity doesn't change, only its ownership does. In an asset purchase, the buyer picks and chooses specific assets (equipment, brand, customer contracts) while leaving unwanted liabilities behind with the seller.
Because a share purchase means inheriting the company "as is," the due diligence and warranty clauses in an SPA carry far more weight than they would in an asset deal. This is exactly why SPAs are drafted with such heavy emphasis on representations, warranties, and indemnity.
No experienced buyer signs an SPA without first digging into the company's financial statements, tax filings, litigation history, employee contracts, and regulatory compliance record. This process — due diligence — usually happens before drafting even begins, because its findings shape which warranties the buyer will insist on and which risks need specific indemnity protection.
Many deals also start with a term sheet, a short non-binding document that captures the agreed commercial basics (price, structure, timeline) before lawyers draft the full SPA. Getting the term sheet right in advance makes the actual SPA negotiation far faster.
Parties and share details. Names the buyer and seller(s) precisely, along with the exact number, class, and type of shares being transferred. Sounds basic, but errors here — wrong share class, incomplete seller list — cause real registration problems later.
Consideration and payment terms. States the purchase price and how it will be paid — lump sum, instalments, or an earn-out structure tied to future performance. It should also clarify whether the price is fixed or subject to adjustment based on a completion balance sheet.
Conditions precedent. These are the boxes that must be ticked before the deal actually closes — regulatory approvals, board and shareholder resolutions, third-party consents, or clearance of any encumbrances on the shares. The transaction is legally "signed" but not yet "closed" until these are satisfied.
Representations and warranties. This is where the seller formally states facts about the company — accurate financials, no undisclosed litigation, valid licenses, clean tax records, and so on. If a warranty later turns out to be false, it gives the buyer a contractual basis for a claim, separate from having to prove fraud.
Indemnity clause. Closely tied to warranties, this clause obligates the seller to compensate the buyer for specific losses — often tax liabilities or litigation that existed before the deal but surfaces afterward. Indemnity caps and time limits are usually one of the most negotiated parts of the entire agreement.
Non-compete and non-solicit. Prevents the seller from starting a competing business or poaching the company's employees and clients for a defined period after the sale. Without this, a seller could legally walk away and rebuild a rival business using the same relationships.
Material Adverse Change (MAC) clause. Gives the buyer an exit route if something significantly damages the company's value between signing and closing — but Indian courts read these narrowly, so the drafting needs to be specific rather than a vague, catch-all sentence.
Confidentiality. Protects sensitive information shared during due diligence and negotiation from being disclosed to competitors or the market, whether or not the deal ultimately closes.
Closing mechanics. Spells out exactly what happens on closing day — share certificate transfer, board resolutions, MCA filings, and the release of payment. A vague closing mechanics clause is one of the most common reasons deals get delayed at the finish line.
Governing law and dispute resolution. Indian SPAs typically choose Indian law with arbitration as the dispute resolution route, often under domestic rules for local deals or an institutional seat like SIAC for cross-border ones. This clause matters most exactly when nobody's paying attention to it — during a dispute.
Ignoring any of these doesn't just cause a compliance headache later — it can hold up or invalidate the entire transaction.
An SPA governs the one-time transaction of buying and selling shares. A Shareholders' Agreement governs the ongoing relationship between shareholders after the purchase — things like board rights, voting matters, and exit provisions.
It's not a legal requirement, but skipping it is one of the riskiest decisions a buyer can make, since a share purchase means inheriting the company's existing liabilities along with its assets.
For a straightforward transaction, drafting alone can take two to four weeks. Complex deals involving regulatory approvals, cross-border elements, or heavy negotiation can take considerably longer.
Yes, provided both parties agree to the changes. It's good practice for the original SPA to specify how future amendments should be documented and executed.
Share transfers attract state-specific stamp duty, which needs to be paid to make the document enforceable, though registration requirements vary depending on the state and structure of the transaction.
A standard template can work for very simple, low-value transfers between parties who trust each other completely, but for most transactions, professional drafting is worth it — the warranty and indemnity clauses are exactly where generic templates tend to fail buyers and sellers alike.