This article has been written by Sarika Gupta pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement course from LawSikho.

This article has been edited and published by Shashwat Kaushik.


In the whole world, the most preferable mode of business in an organised manner is considered through a company, where corporate finance and business transactions are key. SPA is an important document in the phase of share purchase within a company.

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When entering a business, it may involve purchasing shares of the company.  In such cases, it is highly recommended to have a close look into a share purchase agreement. A share purchase agreement (SPA) is a business handshake with or “in legal terms,” a legal document in which ownership of the company’s share is transferred from the seller to the buyer of a target company to increase the company’s capital.

A share purchase agreement outlines the official announcement of the share purchase and the rules on which the seller and buyer both agreed.

A share purchase agreement ( SPA) contains all important pieces of information about the parties’ identities, share price and payment, the number of shares, basic warranties, and all these conditions on which the seller and the buyer agreed, regardless of company size, whether it’s big and public or small and private.

In addition, SPA sets out a tone of fairness and quality between the buyer and the seller.

Essential elements

Transparency on parties’ persona

The identity of an individual includes unique characteristics of the person; it is more than the name of the person. Transparency in identities promotes a strong feeling of trust, belongingness, and recognition between the parties, as well as solid business transactions. For successful business transactions, it is crucial to have clarity on the identities of the parties. It is never ignored in any kind of business if you want to set a long-term path for your business.

Description of the product

Explaining the transaction: The details of the product are not just a series of items; they are more than that. It is a necessary ingredient that we are putting into our business, which in turn creates a strong, trustworthy relationship between the parties that strengthens our business. A clear and clean product description gives the buyer a sense of confidence as well as builds trust in what he is going to purchase. The clarity in the description of the product helps the buyer understand what and why he is going to purchase that particular product. It is good to know about the product before buying it.

Purchase price and payment terms

Promise financial clarity: The price and payment are more than numbers; precisely mentioned purchase price and payment terms in a share purchase agreement build respect, belief, and mutual understanding between the parties.

To prevent any kind of misinterpretation or future disputes, it is important to be clear and concise while discussing the payments and the price terms of shares purchased subject to such modifications. It is recommended to be straightforward while negotiating price and payment terms to avoid any future disagreements. An open conversation while deciding the terms of an agreement is highly beneficial for both parties to maintain long-term business relationships.

Delivery process and requirements

Establish smooth transfer: The transfer procedures are not treated like a procedure only; this is a required condition for committing a smooth and effective handover of ownership that enables a quality factor in your business transactions. Adopting, a seamless transfer process is key to achieving fruitful relationships in business. When you lay down clear expectations to be delivered successfully, those clear and plain expectations build a strong and safe partnership between the parties that may be beneficial for future business as well.

Warranties and representations

Ensure trust: Warranties and representations in share purchase agreements are a very important element. When a buyer buys shares of a target company, the seller lays down some statements before the buyer, known as representations.

Representations given by the seller provide essential information that is related to the company’s current state, the company’s financial position, the company’s assets, etc. to the buyer of the shares. The seller gives assurance to the buyer that the representations are accurate and complete about the business of the company by giving warranties.

Governing law and dispute resolution

Ensuring enforcement and peaceful resolution: In a SPA, the governing law and governance clauses for dispute resolution are not just rules or formalities; they are the backbone and building blocks on which parties to the agreement can seek justice and fairness. It builds trust and also provides direction to the justice-seeking party on which direction they should go.

Legal protection builds a sense of long-lasting partnership in businesses. The presence of a dispute resolution clause,  along with an indemnification clause, in the SPA saves time as well as lengthy court processes in resolving disputes between the parties.

The necessity of SPA

A Share Purchase Agreement (SPA) confirms that the buyer and the seller are both in agreement to purchase the shares of a target company. The SPA outlines clarity and understanding due to the detailed information mentioned in the SPA about the share purchase between the parties.

SPA acts as a safeguard for both parties, as the confidentiality clause is present in the SPA agreement. In case any disagreement arises between the parties, the dispute resolution clause saves time and money. The SPA is a necessary document that makes sure that the buying and selling of shares go smoothly and fairly for each individual involved.

Can a  SPA be specifically enforced

A share purchase agreement is a legally binding agreement between the seller and the purchaser of shares of a target company. It contains the terms and conditions of the sale, including the purchase price, the number of shares that are sold,  representations, warranties, and other important pieces of information. Once both parties sign the share purchase agreement, they become legally obligated to fulfil their respective duties as per the agreement against each other. 

How to make SPA effective

In SPA, a common mistake that we see in most cases is not properly reviewing the seller’s warranties that he provides to the buyer.

To make an SPA effective, it is recommended that the seller carefully review all the warranties that he gave to the buyer to prevent any misunderstandings or costly dispute resolution.

Secondly, not paying careful attention to the rules that are given in “the articles of association” of a company.

For instance, the article might include prior approval from the board of directors for transferring the shares. So, it is important to be aware of the rules that are mentioned in the article of the company, which further helps in a smooth purchase and also fulfils compliance with the rules and regulations of the company.

Pros and cons of SPA


  • Those clearly outlined terms in the share purchase agreement regarding payment of shares, price of shares, number of shares, etc., reduce the chance of doubts or ambiguity for future misunderstandings between the parties.
  • The availability of a dispute resolution clause in SPA lowers the need to seek assistance from the courts, saves time, and reduces lengthy court litigation processes.
  • High enforceability of SPA due to the enlisted governing laws mentioned in the share purchase agreement. Governing rules and laws provide structure for the enforcement of the terms of the agreement, which creates a safe environment for both parties.
  • The warranties regarding the status and condition of the shares provided by the seller serve as a cornerstone for the availability of legal protection for the buyer of the share purchase.


  • For drafting a successful share purchase agreement, a well-versed legal expert is required who might demand a high fee for drafting and interpreting SPA.
  • In cases of multiple parties and complex transactions to be understood, the requirement of a legal advisory is a must condition to be fulfilled condition to prevent future complications, which is a time-consuming process.
  • As mentioned above, SPA provides legal protection to parties, but it may not estimate market fluctuations and unforeseen liabilities, and parties may still lack complete legal protection.
  • When all parties sign a share purchase agreement, making changes to the terms of an SPA is not an easy task; it needs to go through
  • a lengthy legal process once again, which may also demand the mutual consent of all parties to the agreement.

In case of cons, possible remedies

  • First and foremost, the share purchase agreement has a remedy clause in itself that provides solutions to disputes and breaches arising between the parties to the agreement.
  • Advice from a legal expert is something anyone can value. A legal expert can help you decide what to do next in the event of any legal complications.
  • An injunction order from the courts is another remedy that a non-defaulting party to the agreement may seek. It stops the defaulting party to the agreement from further breaching the terms.
  • For all real financial losses suffered by the non-defaulting party due to the defaulting party’s breach of the agreement, compensation is one more available remedy in that case.
  • The option of revocation of an agreement is also available in cases of disputes or breaches of the terms of the agreement.
  • Depending on the circumstances of the disputes, specific performance at the end of justice and fairness is also available as a remedy for a party who is not at fault.
  • The list of remedies doesn’t end here; there are many other remedies available for a party who faces challenges or disputes in the share purchase agreement that may include termination of an agreement, mediation, restitution, conciliation, arbitration, etc.

Significance of a SPA

A share purchase agreement (SPA) plays a pivotal role in the acquisition of shares in a company, offering significant advantages to both the buyer and the seller.

Legal framework for the transaction

A share purchase agreement establishes a legally binding framework for the transfer of shares. It outlines the terms and conditions of the acquisition, including the purchase price, payment terms, and the responsibilities of both parties. This agreement serves as a roadmap for the transaction, ensuring that all parties involved are on the same page and protected under the law.

Protection of buyer’s interests

For the buyer, a share purchase agreement provides several layers of protection. It ensures that the seller has the legal right to sell the shares, that there are no outstanding liens or encumbrances on the shares, and that the buyer acquires a clear title to the shares. The agreement also includes representations and warranties from the seller, providing the buyer with recourse in case of any misrepresentations or breaches of contract.

Due diligence and disclosure

A share purchase agreement facilitates due diligence by the buyer. It outlines the buyer’s right to access the company’s financial records, legal documents, and other relevant information. This due diligence process allows the buyer to make an informed decision about the acquisition and assess the risks involved. The seller, on the other hand, must provide accurate and complete information to the buyer, ensuring transparency throughout the transaction.

Allocation of risks and liabilities

A share purchase agreement clearly allocates risks and liabilities between the buyer and the seller. It specifies the conditions under which the buyer assumes the liabilities of the company being acquired, including any contingent liabilities or environmental obligations. This allocation of risks helps mitigate potential disputes and provides clarity for both parties.

Tax considerations

The share purchase agreement addresses tax implications related to the transaction. It takes into account the tax laws applicable to the buyer and the seller, ensuring compliance with relevant tax regulations. The agreement also outlines any tax-related warranties or indemnities, protecting both parties from unexpected tax liabilities.

Exit strategies

A share purchase agreement often includes provisions for future exit strategies. It may specify the conditions under which the buyer can sell the shares or the seller can reacquire the shares. This foresight ensures that both parties have a clear understanding of their options in the future.

Dispute resolution

The share purchase agreement outlines the process for dispute resolution in case of any disagreements between the buyer and the seller. It may include provisions for mediation, arbitration, or litigation, providing a structured approach to resolving conflicts amicably.

Process of SPA

The share purchase agreement (SPA) process is a legal contract between a buyer and seller that outlines the terms and conditions of a share purchase. It is a complex process that involves several steps and can take several weeks or months to complete.

  1. Negotiation:
    • The process begins with negotiations between the buyer and seller, where they discuss the terms of the agreement.
    • Key negotiation points include the purchase price, payment terms, closing date, and any contingencies.
  2. Due diligence:
    • The buyer conducts due diligence to assess the target company’s financial, legal, and operational status.
    • This involves reviewing financial statements, legal documents, and management presentations.
  3. SPA drafting:
    • Once the due diligence is complete, the buyer and seller work with their respective legal counsel to draft the SPA.
    • The SPA is a legally binding document that outlines the terms of the transaction, including the purchase price, payment terms, closing date, and any contingencies.
  4. Execution of the SPA:
    • Once the SPA is finalised, it is executed by both parties.
    • The execution of the SPA creates a legally binding contract.
  5. Closing:
    • The closing is the final step in the SPA process.
    • It involves the transfer of shares from the seller to the buyer and the payment of the purchase price.
    • The closing date is typically specified in the SPA.
  6. Post-closing obligations:
    • After the closing, there are certain post-closing obligations that may need to be fulfilled.
    • These obligations may include delivering additional information or documents, providing transition assistance, or complying with any other post-closing covenants.

The SPA process can be complex and time-consuming, but it is essential to ensure that the transaction is completed in a legal and orderly manner. By following the steps outlined above, buyers and sellers can help ensure a smooth and successful SPA process.

Warranties and indemnities in SPA

Warranties and indemnities are important contractual provisions in a share purchase agreement (SPA) that allocate risk between the buyer and seller of a company.

Warranties are statements of fact or representations made by the seller about the company’s business, financial condition, and legal compliance. They are intended to provide the buyer with comfort that the information provided in the SPA is accurate and complete.

Indemnities are contractual obligations of the seller to compensate the buyer for any losses or damages suffered as a result of a breach of warranty or other contractual obligation. They are designed to protect the buyer from any financial or legal liability arising from the purchase of the company.

Warranties in a SPA typically cover a wide range of matters, including:

  • The accuracy and completeness of the financial statements.
  • The absence of any material undisclosed liabilities.
  • Compliance with all applicable laws and regulations.
  • The absence of any material adverse change in the company’s business since the date of the SPA.

Indemnities in a SPA typically cover a wide range of matters, including:

  • Any breach of warranty.
  • Any liabilities or claims arising from the company’s business.
  • Any costs or expenses incurred by the buyer in defending against any claims or litigation.
  • Any losses or damages suffered by the buyer as a result of the purchase of the company.

The scope and extent of warranties and indemnities in a SPA can vary depending on the specific circumstances of the transaction. It is important for both buyers and sellers to carefully negotiate these provisions to ensure that their interests are adequately protected.

Here are some key considerations for negotiating warranties and indemnities in a SPA:

  • The scope and coverage of the warranties and indemnities.
  • The duration of the warranties and indemnities.
  • The limitations and exclusions on warranties and indemnities.
  • The remedies available for breach of warranty or indemnity.
  • The allocation of costs and expenses associated with warranties and indemnities.


A share purchase agreement is not only a legally binding document; it is a great combination of trust, respect, quality, mutual understanding, legal protection, and fairness between the parties to the agreement. These are all important ingredients in making a long-lasting business partnership.

long-lasting. A firm share purchase agreement may be achieved by carefully reviewing and negotiating the terms of the agreement.

It is highly recommended, not only for share purchase agreements but for all kinds of agreements that each party to the agreement must carefully look up to the whole agreement before signing the documents. Making changes to the agreement after signing the agreement is a lengthy process that may require us to follow the whole process again, and also the mutual consent of the parties involved.

Keep in mind that a solid SPA is not just a legal paper, it creates a bridge to a successful and long-term business partnership for the future that results in mutual growth of the parties.



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