share purchase agreement (spa)

What Is a Share Purchase Agreement (SPA)?

A share purchase agreement (SPA) is a legal contract that sets out the terms and conditions for buying and selling shares in a company. It is most commonly used in mergers and acquisitions where one party acquires ownership of a business by purchasing its shares rather than its individual assets.

The SPA protects both the buyer and the seller by clearly defining what is being sold, at what price and under which conditions the transaction will complete.

What does a share purchase agreement involve?

While every deal is different, most SPAs include:

  • Purchase price and payment structure, such as lump sum payments, deferred payments or earn-outs
  • Details of the shares being sold and the resulting ownership
  • Completion conditions that must be met before the deal closes
  • Timelines and key dates for signing and completion.

These sections ensure both sides understand exactly how and when the transaction will happen.

Key clauses commonly found in an SPA

Some of the most important protections and controls in an SPA include:

  • Representations and warranties: Statements made by the seller about the company’s financial position, legal status and operations.
  • Indemnities: Commitments by the seller to cover specific known risks or liabilities if they arise after completion.
  • Conditions precedent: Requirements such as regulatory approvals, financing arrangements or internal sign-offs.
  • Limitation of liability: Caps and time limits on claims the buyer can bring against the seller.
  • Termination rights: Circumstances under which either party can walk away from the deal.

How the SPA fits into the M&A process

The SPA usually comes after:

Once the buyer fully understands the target company’s risks and value, both sides negotiate the SPA to reflect what was uncovered during due diligence. The agreement translates commercial discussions into legally binding terms as part of the M&A process.

Who is involved in creating and approving an SPA?

Several parties typically contribute to the SPA, including:

  • Buyers and sellers agree on commercial terms
  • Legal advisors draft and negotiate the contract
  • Financial advisors support valuation and structure
  • Boards of directors approve major decisions
  • Shareholders may approve the transaction if required.

How due diligence supports the SPA

Without thorough due diligence, the SPA may fail to reflect the true state of the business. Due diligence provides the factual basis for the SPA. It helps:

  • Confirm financial and legal information
  • Shape warranties and indemnities
  • Adjust the purchase price if risks appear
  • Highlight conditions that must be met before closing.

The role of virtual data rooms in SPA preparation

Legal and deal teams typically use a virtual data room to manage SPA-related documents. A VDR allows you to:

  • Store due diligence materials securely
  • Share drafts and final agreements
  • Control access to sensitive information
  • Track activity and maintain audit trails.