In short
A share sale and purchase agreement (SPA) transfers ownership of a company by transferring the shares in it rather than its individual assets, meaning the buyer takes the company with its existing contracts, liabilities and history intact. It's built around price and adjustment mechanics, warranties and indemnities, and conditions precedent that must be satisfied before completion. It differs materially from a business (asset) sale agreement, which transfers specific assets rather than the corporate entity.
Why buying shares is different from buying a business
In a share sale, the buyer acquires the company itself — its shares change hands, but the company's contracts, licences, employees, liabilities and history all remain exactly as they were, because the legal entity hasn't changed. This is what makes warranties and due diligence so central to a share SPA: the buyer is inheriting everything the company carries, seen and unseen, so the agreement needs to allocate risk for anything that surfaces after completion that wasn't disclosed beforehand. By contrast, an asset sale lets a buyer cherry-pick specific assets and generally leave undisclosed liabilities behind with the seller — which is why buyers with due diligence concerns often prefer an asset structure where the target's history is uncertain.
Price mechanics and completion accounts
Share SPAs are usually priced on either a locked-box mechanism (price fixed by reference to a balance sheet date before signing, with no adjustment for changes between signing and completion other than agreed leakage) or completion accounts (price adjusted after completion based on actual net assets, working capital or cash/debt-free calculations at completion). We recommend a locked box where the buyer has confidence in recent financials and wants pricing certainty at signing, and completion accounts where there's a longer gap between signing and completion or the target's financial position is genuinely uncertain. Whichever mechanism is used, the agreement needs a clear, mechanical dispute process for any post-completion adjustment dispute, usually referral to an independent expert acting as expert and not arbitrator.
Warranties, disclosure and the disclosure letter
The seller gives warranties — statements of fact about the company's financial position, contracts, employees, litigation, tax position and title to the shares — which, if untrue, give the buyer a claim for breach. Warranties are qualified by a disclosure letter or disclosure schedule in which the seller discloses specific facts against specific warranties; anything properly disclosed can't later be the subject of a warranty claim, so the scope and specificity of disclosure is heavily negotiated. We also address whether warranties are given by the seller alone or (for a company with multiple sellers) jointly and severally, which significantly affects a buyer's practical ability to recover.
Indemnities, caps and time limits
Beyond general warranties, specific indemnities cover known or identified risks — a pending tax audit, a specific litigation matter, an environmental issue — where the seller agrees to indemnify the buyer dollar-for-dollar rather than requiring the buyer to prove loss flowing from a warranty breach. Warranty and indemnity claims are typically subject to a cap (often a percentage of purchase price), a threshold or basket below which claims can't be brought, and time limits after which claims lapse — commonly longer for tax and title warranties than for general business warranties. We negotiate these limits based on the buyer's actual risk exposure identified in due diligence rather than accepting standard-form caps that don't reflect the deal.
Conditions precedent and the gap between signing and completion
Where signing and completion aren't simultaneous, the agreement lists conditions precedent that must be satisfied before completion occurs — regulatory approvals (including foreign investment approval where relevant under the Foreign Acquisitions and Takeovers Act 1975 (Cth)), third-party consents to change of control clauses in key contracts, and any pre-completion restructuring. We also include conduct-of-business covenants restricting what the seller can do with the company between signing and completion, since the buyer is exposed to changes in the target during that window even though it doesn't yet own it.
Completion and post-completion matters
Completion mechanics set out simultaneous delivery obligations — share transfer forms, share certificates, board resolutions approving the transfer and registering the buyer, resignations and releases from outgoing directors, and payment of the purchase price — usually structured so that no party is required to complete its obligations before confirming the other side has too. We also address post-completion matters: restraint of trade on the outgoing seller, transitional services if the seller is staying involved briefly, and the process for any earn-out payments tied to the company's performance after completion.
What the fixed fee covers
- Price mechanism drafting (locked box or completion accounts) matched to your deal
- Full warranty suite tailored to due diligence findings
- Disclosure letter preparation and negotiation
- Indemnities for known risks with appropriate caps, baskets and time limits
- Conditions precedent and conduct-of-business covenants for the pre-completion period
- Completion mechanics and post-completion covenants including restraints
Mistakes we see
- Using an asset-sale template for what is actually a share transfer
- Warranties given without a disclosure letter, exposing the seller to claims for known issues
- No cap or time limit on warranty claims, leaving the seller exposed indefinitely
- Skipping conduct-of-business covenants when there's a real gap between signing and completion
- Earn-out mechanics with no objective calculation method, guaranteeing a later dispute
Who this is for
- Buyers acquiring an entire company rather than specific assets
- Sellers exiting a business they've built, in whole or in part
- Private equity and strategic acquirers running a structured process
- Founders selling a minority or majority stake to an investor
Frequently asked questions
- What's the difference between a share sale and a business (asset) sale?
- A share sale transfers ownership of the company itself, including all its existing liabilities, contracts and history, by transferring its shares. An asset sale transfers only specified assets out of the company, generally leaving undisclosed liabilities behind — which is why buyers concerned about a target's history often prefer an asset structure.
- What is a locked-box mechanism and when should we use it?
- A locked box fixes the purchase price by reference to a balance sheet at a date before signing, with no adjustment at completion other than for agreed 'leakage' (value extracted from the company outside the ordinary course). It suits deals with a short signing-to-completion gap and reliable recent financials; longer gaps or uncertain financial positions usually favour completion accounts instead.
- What does a disclosure letter actually do?
- It sets out specific facts against specific warranties, and once a fact is properly disclosed against a warranty, the buyer generally can't later claim for breach of that warranty in relation to that fact. It's the seller's main tool for limiting warranty exposure, so its scope is heavily negotiated.
- Are warranty caps standard?
- Yes — warranty and indemnity claims are almost always capped, commonly as a percentage of purchase price, with separate (often uncapped or higher-capped) treatment for fundamental warranties like title to the shares and capacity to sell. The right cap depends on the specific risks identified during due diligence.
- Do we need Foreign Investment Review Board approval?
- It depends on the buyer's foreign status, the value of the transaction and the nature of the target's business under the Foreign Acquisitions and Takeovers Act 1975 (Cth). We flag this early in the process so it can be built into the conditions precedent rather than discovered close to completion.
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