Corporate Law / M&A / SPA Pillar

Share Purchase Agreement: How an SPA Is Structured, What It Covers, and When to Use APA Instead

A share purchase agreement is the principal contract used to transfer ownership of a private company by selling shares of the target entity from the existing shareholders to the buyer. The SPA fixes the purchase price, the share count and class being transferred, the representations and warranties each side gives, the indemnification mechanics if a rep turns out wrong, the covenants that govern conduct between signing and closing, and the conditions that must be satisfied before closing. Unlike an asset purchase agreement, which transfers only specific assets and liabilities on a schedule, a share purchase transfers the entire company including every contract, employee, license, and liability sitting on its balance sheet. The four legal elements of contract formation (offer, acceptance, consideration, and intent to be legally bound) appear on the face of every SPA, but the document's commercial weight sits in the reps, indemnification, and disclosure schedules that allocate deal risk between the parties.

Share purchase agreement vs asset purchase agreement comparison hero showing the two M&A document families side by side.

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Reviewed by Jason Lee, Esq., Corporate Attorney. Admitted in New York, Massachusetts. Last updated 2026-05-12.

What a Share Purchase Agreement Is and How It Differs From an Asset Purchase Agreement

A share purchase agreement (commonly called an SPA or, in the United States, a stock purchase agreement) transfers ownership of a private company by transferring the shares of the target entity from the selling shareholders to the buyer. Once the SPA closes, the buyer owns the company, and the company continues to operate with every asset, contract, and liability it had the day before, now under new ownership. The SPA is the central legal artefact of any private M&A transaction and is typically the longest and most heavily negotiated contract in the deal.

An asset purchase agreement (or APA) takes a different shape. Instead of transferring the company itself, the APA transfers a defined list of assets and a defined list of assumed liabilities from the seller (which remains a separate legal entity) to the buyer. The buyer cherry-picks what comes across and leaves the rest behind. Most state successor-liability doctrines respect the APA structure for general contractual exposure, with carve-outs for fraudulent transfers, mere-continuation situations, and certain tax, environmental, and labor claims that travel with the assets even when the contract says they do not.

The choice between SPA and APA is not a drafting preference. It is a strategic decision that shapes deal speed, tax outcomes, third-party-consent requirements, and which side carries the legacy-liability tail. The next section walks through the four dimensions that typically drive the decision: liability allocation, tax treatment, closing speed, and operational continuity.

Doctrinal note

The contract-formation elements (offer, acceptance, consideration, mutual assent, capacity, and lawful purpose) under the Restatement (Second) of Contracts apply to an SPA the same way they apply to any other contract. For SPAs that transfer goods alongside shares (rare but not unheard of in carve-outs), the UCC section 2-201 statute of frauds writing requirement is satisfied on the face of the executed SPA.

When You Use an SPA vs an APA: Strategic Choice by Tax, Liability, and Speed

The strategic choice between a share purchase and an asset purchase turns on five dimensions that play out differently for buyer and seller. The grid below captures the practical trade-offs a corporate deal team works through before the first draft of the transaction agreement leaves the keyboard.

What transfers

Share Purchase Agreement

Every share of the target entity, and with it the whole company: assets, liabilities, contracts, employees, licenses, and litigation.

Asset Purchase Agreement

Only the specific assets and liabilities listed on the asset schedule. Anything not listed stays with the seller's existing entity.

Liability exposure for the buyer

Share Purchase Agreement

Inherits all known and unknown liabilities of the target company. Protection runs through reps, disclosure schedules, and indemnification.

Asset Purchase Agreement

Only the liabilities expressly assumed. Successor-liability doctrines in some states can override this for tax, environmental, and labor claims.

Tax treatment (US)

Share Purchase Agreement

Generally a capital transaction for the seller. Buyer does not get a step-up in basis on the underlying assets, which limits depreciation going forward.

Asset Purchase Agreement

Buyer typically gets a stepped-up basis in the acquired assets and the corresponding depreciation. Seller may face double taxation if the seller is a C-corporation.

Speed and complexity

Share Purchase Agreement

Usually faster to close because no individual asset transfer is needed. Counts on the company carrying clean books and clean third-party consents.

Asset Purchase Agreement

Often slower because each material contract may require third-party consent to assign, and asset-level transfers must be papered individually.

Best fit

Share Purchase Agreement

Strategic buyers acquiring an operating business, family-business successions, private equity buyouts of clean companies, and intra-group reorganizations.

Asset Purchase Agreement

Distressed sales, carve-outs of a business unit, buyers who want to leave legacy liabilities behind, and tax-driven deals seeking basis step-up.

Distressed sales and carve-outs of a single business unit almost always run as APAs because the buyer wants to leave legacy liabilities and unrelated contracts behind. Healthy private-company sales and intra-group reorganizations typically run as SPAs because the company has clean books, clean third-party consents, and the speed advantage matters. Tax-driven structuring (the buyer wants an asset basis step-up, the seller wants capital-gains treatment) can flip the choice in either direction; the SPA or APA is the wrapper, but the tax outcome is the headline number.

Eight Clauses Every SPA Carries, From Purchase Price to Closing Mechanics

A stock purchase agreement drafted for a real private M&A transaction runs eighty to one hundred and fifty pages of operative text, plus disclosure schedules and exhibits that often run longer than the agreement itself. Inside that volume, eight clauses carry the commercial weight. Every other clause is plumbing.

Five-stage M&A deal timeline showing letter of intent, due diligence, SPA drafting, signing, and closing with the key deliverables at each stage.

The Five-Stage M&A Timeline

Letter of Intent or Term Sheet

The parties sign a short, mostly non-binding LOI that fixes price, structure (share vs asset), exclusivity, and target timeline. The exclusivity and confidentiality provisions are usually binding; the rest sets the framework for the SPA.

Due Diligence

The buyer's deal team reviews corporate records, contracts, financials, tax filings, employee data, litigation, and IP. Findings flow into the disclosure schedules and may reshape the purchase price, reps package, or indemnification structure.

SPA Drafting and Negotiation

First draft typically comes from buyer's counsel. Negotiation focuses on the reps and warranties scope, indemnification caps and baskets, working-capital adjustment, MAC definition, and any earn-out mechanics. This is where the deal risk is allocated.

Signing

Both sides sign the SPA. For deals that close simultaneously with signing, closing deliverables are executed at the same table. For deferred closings, signing locks in the deal but closing is conditioned on the conditions precedent being met.

Closing

Conditions precedent are confirmed, the purchase price wire flows, share certificates or book-entry transfer documents are delivered, and the closing certificates and legal opinions are exchanged. Post-closing covenants and the indemnification clock begin running.

The Eight Operative Clauses

Parties and Recitals

Identifies each selling shareholder, the buyer, the target company, and the background of the transaction. Recitals do not create obligations on their own but anchor interpretive context for every clause that follows.

Purchase Price and Adjustments

Fixes the headline price, the form of consideration (cash, stock, deferred payments, earn-out), the working-capital adjustment mechanic, and any escrow holdback that secures the indemnification obligations.

Conditions Precedent

Lists every condition that must be satisfied before the buyer is obligated to close: regulatory approvals, third-party consents, accuracy of reps as of closing, no material adverse change, and any deal-specific items.

Representations and Warranties

Seller reps cover the company's corporate organization, capitalization, financial statements, contracts, employees, taxes, litigation, IP, and compliance. Buyer reps are narrower and cover the buyer's authority and financing. Most negotiated section of the entire SPA.

Covenants

Pre-closing covenants control conduct of the business between signing and closing. Post-closing covenants typically include non-compete, non-solicit, confidentiality, and cooperation on tax matters and any pending litigation.

Indemnification

Specifies the survival period of the reps, the cap on aggregate indemnification, the deductible (basket) before claims trigger, and the carve-outs (fraud, fundamental reps, tax) that may carry uncapped or longer-survival treatment.

Disclosure Schedules

Schedules attached to the SPA qualify each rep with the specific items the seller is disclosing to the buyer. A defect in the disclosure schedule is the single most common driver of post-closing indemnification claims.

Closing Mechanics and Boilerplate

Closing deliverables list, governing law, dispute resolution forum, notice provisions, integration clause, expense allocation, and termination rights if the deal does not close by the outside date.

Negotiation time on a typical mid-market SPA concentrates in the reps and warranties package, the indemnification cap and basket structure, and the disclosure schedules that qualify each rep. Everything else is heavily templated and moves quickly between counsel. For a templated starting point on the underlying contracting framework, see our LLC operating agreement template (for entities that need a baseline operating agreement alongside an SPA closing) or our NDA and confidentiality agreement template (for the diligence-phase confidentiality wrapper that usually precedes any SPA negotiation).

Where SPAs Break: Reps and Warranties, Indemnification Caps, and Disclosure Schedule Defects

M&A disputes overwhelmingly resolve through indemnification claims, reps-and-warranties insurance claims, and earn-out disputes, not full-blown court trials. The patterns below are the five recurring failure modes that drive post-closing fights on the SPA, and that any breach-of-contract attorney who handles M&A indemnification work sees on a recurring basis.

Reps and Warranties Too Narrow

Sellers push for tightly bounded reps that survive only briefly after closing. Buyers want broad reps with longer survival. An SPA carrying narrow reps with a short survival window leaves the buyer holding undisclosed liability risk with no contractual recourse once the survival period closes.

Indemnification Cap or Basket Mis-Calibrated

If the cap is too low relative to the deal value, the buyer's recovery on any indemnification claim is capped before it makes the buyer whole. If the basket (deductible) is too high, individual claims fall under the floor and are non-recoverable. Both mis-calibrations shift more risk than the deal economics priced for.

Disclosure Schedule Gaps

Every rep that is not qualified by the disclosure schedule is given absolutely. A schedule that omits a pending lawsuit, a customer-concentration concern, an off-balance-sheet liability, or a known regulatory issue exposes the seller to indemnification claims for items the seller actually knew but did not surface.

Material Adverse Change Definition Drift

The MAC clause lets the buyer walk away if a material adverse change occurs between signing and closing. Boilerplate MAC language carries court-tested exclusions (industry-wide events, macro conditions, changes in law) that may leave the buyer with no exit route when adverse events actually hit.

Earn-Out Calculation Ambiguity

Earn-outs tied to post-closing performance turn on the definition of revenue, EBITDA, or another metric. An SPA that leaves accounting policies vague, or that does not address buyer conduct affecting the metric, creates the most common M&A litigation pattern: post-closing earn-out disputes that drag on for years.

Drafting and review

An SPA carrying any of the five defects above is a templated contract pretending to be a deal document. Get a corporate attorney to draft the SPA around your specific transaction, or to review the draft the other side has put on the table before you sign it. The indemnification clock starts running at closing, and the clauses that look standard are the ones that move the money in a dispute.

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Frequently Asked Questions

What is a share purchase agreement?

A share purchase agreement (SPA) is the principal contract used to transfer ownership of a company by selling the shares of the target entity from the existing shareholders to the buyer. The SPA fixes the purchase price, the share count and class being transferred, the closing date, the representations and warranties each side gives, the indemnification mechanics if any rep turns out to be wrong, the covenants that govern conduct between signing and closing, and the conditions that must be satisfied before the deal closes. Unlike an asset purchase, where the buyer acquires only the assets and liabilities specifically listed, an SPA transfers the whole company including every contract, employee, license, and liability the company carries on its balance sheet. The document is the central legal artefact of any private M&A transaction and is typically the longest and most heavily negotiated contract in the deal.

Who signs a share purchase agreement?

The signatories on a share purchase agreement are the selling shareholders (each individual or entity holding shares being transferred) on one side and the buyer (or buying entity) on the other. The target company itself is sometimes a party as well, particularly where it gives representations about its own state of affairs or where escrow and earn-out mechanics involve company performance after closing. For an entity signatory, the signature must come from a person with corporate authority to bind the entity (typically a director, officer, or authorized representative under a board resolution), and the SPA usually requires the entity to deliver a certificate of authority at closing. Personal signatures are made in the signatory's individual capacity for personal sellers and in a representative capacity for entity sellers; the signature block must reflect which capacity is being exercised.

Can I write my own purchase agreement?

You can draft your own share purchase agreement, and templates exist for simple transactions, but a self-drafted SPA in a real M&A deal carries enforceability and risk-allocation defects that template language rarely catches. The financial stakes are concentrated in clauses that look standard on the surface and behave very differently in dispute: the reps and warranties package, the indemnification caps and baskets, the disclosure schedules that qualify each rep, the working capital adjustment, the material adverse change definition, and the earn-out calculation if any. A template can move a friendly intra-family share transfer or a tiny private deal forward, but a buyer paying real consideration for a real business, or a seller giving real reps, is taking on risk that the template was not drafted to allocate. Legal Tank's drafting service builds the SPA around your specific deal structure, and our review service walks through every clause if a draft has already been put on the table by the other side.

What are the disadvantages of share purchase?

The principal disadvantage of a share purchase for the buyer is that the buyer inherits every liability the company carries, whether disclosed or undisclosed. Unlike an asset purchase, which lets the buyer cherry-pick the assets and liabilities being assumed, a share purchase transfers the whole entity including pending litigation, tax exposure, employee claims, environmental obligations, and contracts that may carry change-of-control termination triggers. The buyer's only protection against undisclosed liabilities is the seller's representations and warranties, the disclosure schedules that qualify those reps, the indemnification mechanic that pays the buyer back if a rep turns out to be wrong, and any reps-and-warranties insurance the deal carries. The principal disadvantage for the seller is that the share purchase typically requires the seller to give broad reps about the company that survive closing and create post-closing indemnification exposure, which an asset sale does not require to the same extent.

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