Corporate Law Videos - Indian Kaanoon - What is Share Purchase Agreement?

A share purchase agreement is a formal contract signed between a buyer and seller with respect to purchase of shares. The agreement can be either between a single buyer and seller or between a seller and multiple buyers. In the latter case,  if the buyers are shell companies or companies created only for the purpose of effecting an SPA and lacking financial or administrative credibility, it should be ensured that Principals of such companies, i.e. heads of such companies are made Covenants/Guarantors to ensure payment or compensation in cases of fraud or non-payment. Thus, such an agreement helps in formalizing and executing sale of shares in an organized and legal manner. A share purchase agreement must essentially consist of the following clauses- the rights and duties of the buyer and seller, the territorial jurisdiction to which the agreement is applicable, arbitration clause that shall provide the legal steps that can be taken in case a dispute arises between the buyer and seller. The agreement must also provide for a closing mechanism i.e. the process to be followed after the shares have been exchanged specifically exchange of documents and other legal formalities that is to be complied with post the sale takes place. The biggest advantage of a share purchase agreement is that it helps the companies to keep a track of shareholders and include them in decision making process. It also helps in keeping a creating a legal framework to protect the rights of seller.