A Share Purchase Agreement (SPA) is a legal contract between a seller and a buyer signed at the time of purchasing the shares of the company and consists of details like an investment, allotment, lock-in period, terms of investment, etc.
It is a very important document and every company enters into this agreement; it is the documented proof available with the purchaser of the shares of the company, a copy is also available with the seller. In case of any dispute, it can be easily resolved by giving preference to the agreement executed.
If a corporation or individual is purchasing or selling shares in the company with another business or person, they should use a share purchase agreement. As an example, if a business has two partners who have equal shares and one leaves the partnership, a share purchase agreement can be used to buy their stocks in the business. When all of the shares are purchased, a purchase of business agreement can be used instead.
Who needs a Share Purchase Agreement?
A Share Purchase Agreement should be used any time an individual or corporation is selling or purchasing shares in a company to or from another person or business entity.
For example, if you and two business partners all have equal shares in a company and one partner wishes to withdraw, a Share Purchase Agreement can be used to purchase the withdrawing partner’s shares.
When purchasing all of the shares in a business (100% of the shares), it’s recommended that you use a Purchase of Business Agreement instead.
What information is included in a Share Purchase Agreement?
A Share Purchase Agreement generally includes information about:
· The person selling the shares
· The person buying the shares
· The number of shares being sold and their value
· The company the shares are being transferred from
· The number of shares being sold and their value
· The type and class of the shares being sold (e.g. Class A Common Voting)
· What law governs the agreement
A Share Purchase Agreement also includes payment details, such as whether a deposit will be required, when the full payment is due, and the closing date of the agreement.