A share purchase agreement (SPA) is a formal contract or an agreement that sets out the terms and conditions relating to the sale and purchase of shares in a company. It is typically entered into by and between a buyer and seller(s) of a target company’s shares whereby the seller(s) agrees to sell a specific number of shares to the buyer for a specified price. SPAs fall within the domain of mergers and acquisitions (M&A) and typically arise where an investor wholly or partially acquires a company and thereby the investor also acquires its liabilities. Consequently, an M&A transaction is typically accompanied by extensive due diligence (DD).
The basic elements of a share purchase agreement include, among others, payment of the purchase price, conditions precedent (a clause stipulating that one of the contracting parties must release the other party from liability provided losses are incurred), warranties (obligations which ensure the performance of the contract and also provide remedy for possible future problems), indemnities (obligations to reimburse the other party in full if particular events happen and the ther party incurrs loss as a result), right of pre-emption (right for existing shareholders to have first refusal on the issue of new shares by a company), call option (right to purchase a certain shares at a certain price up until a defined expiration date), put option (right to sell specific shares by a set date at a set price), tag along right (or „co-sale right” allowing minority stakeholders to sell shares under the same conditions as a majority stakeholder) and drag along right (or „bring along right”, gives majority stakeholders the ability to sell a company to a third-party without consent from minority shareholders).
KEY VOCABULARY
acquires
call option
condition(s) precedent
consent
due diligence
to ensure
expiration date
to incurr
indemnity
mergers and acquisitions
put option
to reimburse
right of pre-emption
share purchase agreement
stakeholder
target company
tag along right
warranty
