Share purchase agreement template

A share purchase agreement (SPA) is a vital document in the realm of business transactions, especially when it involves the sale or purchase of shares in a company. Understanding its purpose, use cases and management is crucial for businesses – particularly for legal, HR and commercial teams in growing companies. 

This article will delve into what a share purchase agreement is, its purpose and use cases. We also look at what a share purchase agreement template should include, how templates are managed and how to overcome challenges by automating them with Juro’s contract management software.

What is a share purchase agreement?

A share purchase agreement is a legal contract that outlines the terms and conditions under which shares in a company are bought and sold. This agreement is between the seller – who is the current shareholder – and the buyer, who is interested in acquiring the shares. The SPA details the price, the number of shares and the specific obligations of both parties.

What is the purpose of a share purchase agreement?

The purpose of a share purchase agreement (SPA) is to provide a clear, legally binding framework for the transfer of ownership of shares from the seller to the buyer. It serves several critical functions:

• Defines the specific terms and conditions of the transaction, including the number and type of shares being sold, the purchase price, payment terms and the closing date. This clarity helps prevent misunderstandings and disputes between the parties.
• Allocates risks between the buyer and the seller through representations, warranties and indemnities. This means that each party makes certain promises about the business and agrees to compensate the other if those promises turn out to be false.
• Protects the interests of both parties by setting out their rights and obligations. This includes conditions precedent that must be met before the sale can be completed, covenants regarding future actions, and post-completion obligations.
• Ensures that the transaction complies with all relevant legal and regulatory requirements. This is particularly important in complex transactions involving multiple jurisdictions.
• Facilitates due diligence, allowing the buyer to thoroughly investigate the company's financial, legal and operational status before completing the purchase.
• Provides a framework for dispute resolution, specifying the governing law and methods for resolving disputes. This helps manage any conflicts that may arise during or after the transaction, reducing the risk of prolonged legal battles.

Who manages share purchase agreements?

Share purchase agreements are typically managed by the legal team within a company. However, other teams – like HR and commercial – may also be involved depending on the context of the transaction. 

For instance, HR might need to address the implications for employee shareholders, while the commercial team may handle the financial aspects. External legal counsel is often engaged to ensure the SPA complies with relevant laws and regulations and to manage complex transactions.

Share purchase agreement use cases

Share purchase agreements (SPAs) are used in a variety of scenarios involving the transfer of ownership of shares in a company. Here are some common situations:

Mergers and acquisitions

When one company acquires another by purchasing its shares, an SPA outlines the terms of the acquisition and the transfer of ownership.

Investment transactions

When investors such as venture capitalists or private equity firms buy shares in a company as part of an investment, an SPA is used to document the terms and conditions of the investment.

Buyouts

In management buyouts (MBOs) or leveraged buyouts (LBOs), where a company's management team or an outside entity buys out the existing shareholders, an SPA details the terms of the buyout.

Exit strategies

When founders or early investors in a startup decide to sell their shares, an SPA is used to facilitate the sale to new investors or existing shareholders.

Private sales

When individual shareholders in a private company sell their shares to other individuals or entities, an SPA ensures that the sale terms are clear and legally binding.

Corporate restructuring

In situations where a company is restructuring its ownership or spinning off a subsidiary, an SPA may be used to manage the transfer of shares within the corporate group.

Joint ventures

When companies form a joint venture and one party acquires shares in the newly created entity, an SPA outlines the terms of the share purchase.

Succession planning

In family-owned businesses, SPAs can be used as part of succession planning to transfer shares to the next generation or to other family members.

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What should a share purchase agreement template include?

A share purchase agreement template should be comprehensive and cover all essential aspects of the transaction, providing a comprehensive and legally enforceable framework for the sale and purchase of shares that protects both parties. Here is a detailed outline of what a typical SPA template should include:

Title. The document should be clearly labelled “Share Purchase Agreement” at the top of the first page to indicate its purpose and distinguish it from other documents.

Introduction. State the full date of the agreement to establish when it was made. Clearly identify the parties involved, including full legal names, addresses and any other relevant details for both the buyer and the seller.

Recitals. Provide background information that explains the context and purpose of the agreement, including a brief description of the company whose shares are being sold and the intent of the transaction.

Definitions. Define key terms used throughout the agreement, such as "Shares", "Purchase Price", "Closing Date" and any other important contract terminology, to ensure clarity and avoid misunderstandings.

Purchase and sale of shares. Specify the exact number and type (e.g. common, preferred) of shares being sold, including any share certificates or unique identifiers. State clearly the total purchase price for the shares and the method of payment, including any deposit or instalment terms, and the currency to be used.

Conditions precedent. List all specific conditions that must be fulfilled before the transaction can proceed, such as obtaining necessary regulatory approvals, completing due diligence to the satisfaction of the buyer and receiving any required third-party consents.

Representations and warranties. Include detailed statements of fact made by the seller about the ownership, condition and legal status of the shares and the company, as well as statements by the buyer regarding their financial capacity and intent to purchase.

Covenants. Outline the obligations of both parties before and after the completion of the sale, such as the seller's commitment to operate the company in the ordinary course until closing and the buyer's agreement to maintain confidentiality and non-compete agreements.

Indemnities. Specify provisions that protect either the buyer or seller from future liabilities, losses or damages related to the transaction or the company's operations before the sale. This should include any legal costs incurred.

Completion arrangements. Detail the procedures for the closing process, including the exact date, time and location of the closing, and outline the actions to be taken at closing – for example, the transfer of share certificates, payment of the purchase price and delivery of any required documents.

Post-completion obligations. Describe the ongoing responsibilities of both parties after the sale is completed, such as registering the share transfer with the relevant authorities, updating the company's shareholder register and any other actions required to finalize the transfer.

Governing law and dispute resolution. State the legal jurisdiction that will govern the agreement to ensure clarity on which laws apply. Outline the methods for resolving any disputes that may arise, such as arbitration or court proceedings, including the venue and rules to be followed.

Confidentiality. Include clauses that require both parties to keep the terms of the agreement and any sensitive information disclosed during the transaction confidential, and specify the duration of this confidentiality obligation.

Notices. Define the procedures for delivering notices and communications between the parties, including acceptable methods (e.g. email, registered mail), the addresses to be used and the required timing for notices to be considered effective.

Entire agreement. Include a clause stating that the SPA represents the entire agreement between the parties, superseding all prior negotiations, discussions, and agreements, whether written or oral, to make sure that no outside documents or understandings can alter the terms.

Amendments. Specify the conditions under which the agreement can be amended or modified – typically requiring written consent from both parties to ensure any changes are mutually agreed upon and documented.

Signatures. Provide spaces for the signatures of the buyer, seller and any witnesses, along with their printed names and dates, to formally execute the agreement and make it legally binding.

Schedules and exhibits. Attach any additional documents or information referenced in the agreement, such as a detailed list of the company's assets, recent financial statements, a copy of the share certificate, and any other relevant materials that provide context or detail to the agreement.

How are share purchase agreement templates usually managed?

Step 1: Initial drafting

• Preparation: A corporate lawyer or in-house counsel prepares the initial draft of the SPA template. This involves researching relevant laws and regulations, and incorporating standard terms and clauses.
• Template creation: The lawyer creates a comprehensive SPA template that includes all necessary sections, such as definitions, purchase and sale terms, representations and warranties, covenants, indemnities, and dispute resolution mechanisms.

Step 2: Customization for specific transactions

• Information gathering: Collect all necessary details about the specific transaction, including names of parties, number and type of shares, purchase price, payment terms and any special conditions.
• Template editing: Modify the template to include the specific transaction details. Make sure that all sections are accurately completed and reflect the agreed terms.
• Consistency check: Review the document to ensure that all customized details are consistent throughout the agreement.

Step 3: Collaboration and review

• Internal review: Share the customized SPA with internal stakeholders (legal, finance, executive teams) for review. Each team reviews the agreement from their perspective and provides feedback.
• Revision and feedback: Incorporate reviewer feedback and make any necessary revisions to the SPA. This may involve several rounds of review and editing to ensure all concerns are addressed.

Step 4: Version control

• Document versioning: Assign a version number to the draft (e.g., v1.0, v1.1) and maintain a version history. Track all changes made to the document, including who made them and when.
• Changelog: Keep a log of revisions that provides a brief description of what was changed and why.

Step 5: Approval process

• Final review: Conduct a final review of the SPA to ensure it is complete and accurate. This review should be thorough, covering all legal and commercial aspects.
• Management sign-off: Obtain sign-off from senior management and other key stakeholders. This may require meetings or written approvals.
• Legal approval: Ensure that the final version is approved by the legal team, confirming that it complies with all legal requirements and protects the company’s interests.

Step 6: Storage and access

• Document storage: Save the final SPA in a secure document management system. Make sure that it can be easily retrieved and referenced.
• Access control: Set appropriate access controls to ensure that only authorized personnel can access or modify the document.

Step 7: Templates for different jurisdictions

• Jurisdiction-specific templates: If necessary, create SPA templates tailored to different legal jurisdictions. Ensure that these templates comply with local laws and regulations.
• Review for compliance: Have local legal experts review the jurisdiction-specific templates to ensure compliance.

Step 8: Regular updates

• Periodic review: Schedule regular reviews of the SPA template to ensure it remains current with changes in laws, regulations and best practices. Make necessary updates to keep the template legally sound and effective.
• Stakeholder feedback: Gather feedback from users of the template to identify areas for improvement and incorporate their suggestions into future revisions.

Step 9: Training and guidance

• User training: Train employees involved in drafting or reviewing SPAs to ensure they understand how to use the templates effectively. This training should cover an understanding of key clauses, knowing when to seek legal advice and ensuring compliance with company policies.
• Guidance documentation: Create and distribute guidance documents that explain how to customize and use the SPA templates, including examples and best practices.

Step 10: Audit and compliance

• Periodic audits: Conduct periodic audits to ensure that all SPAs are being managed according to company policies and legal requirements. This helps identify any gaps or issues in the process and ensures continuous improvement.
• Compliance checks: Regularly check that the templates and their usage comply with relevant laws and regulations to mitigate legal risks.

Challenges of managing share purchase agreement templates

Managing share purchase agreement templates manually presents several challenges, particularly in maintaining accuracy and efficiency:

• Human errors – such as incorrect data entry and missed information – are common in manual processes, leading to inconsistencies across documents. 
• Ensuring that all stakeholders are working with the most up-to-date version can be difficult, especially when dealing with complex transactions. 
• The process of customizing, reviewing and approving SPAs manually is time-consuming and often inefficient, involving repetitive tasks that can lead to burnout. 
• Coordinating reviews and approvals among multiple teams can be challenging, and miscommunications can result in inconsistencies and misunderstandings.

Manage share purchase agreements in Juro

Juro's AI-native contract management platform offers several features that can significantly streamline the management of share purchase agreements, addressing many of the challenges associated with manual processes:

Automation and efficiency

Juro automates the creation, customization and approval processes of SPAs. With automated contract templates and intelligent workflows, repetitive tasks are minimized, as standard clauses and terms can be predefined and reused efficiently. This reduces the risk of human error and speeds up the entire process while ensuring consistency across all documents.

Collaboration and communication

Juro provides a collaborative workspace where all stakeholders can work together in real time. This centralized platform allows for seamless coordination between legal, finance, and executive teams, facilitating clear communication and reducing the likelihood of miscommunications. The platform supports version control, ensuring that everyone is working with the most current document and that changes are tracked and documented.

Security and accessibility

Juro ensures robust data security with advanced encryption and access control features. Sensitive information within SPAs is protected, and permissions can be managed to ensure that only authorized personnel are able to edit or view specific documents. Juro’s cloud-based system allows for easy access from anywhere, making sure that documents are always available when needed.

Compliance and updates

Juro’s platform can be configured to ensure compliance with the latest legal and regulatory requirements. It allows for easy updates to templates, ensuring that all agreements are current and legally sound. Additionally, managing templates for different jurisdictions is simplified, as the platform can accommodate various legal requirements and changes.

Juro's AI-native contract automation platform empowers all teams to create, agree, execute and manage contracts up to 10x faster than traditional tools. To find out more, hit the button below to book your personalized demo.