What is a Share Purchase Agreement?

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.

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