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Share Purchase Agreement (SPA)

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What is a Share Purchase Agreement (SPA)?

A Share Purchase Agreement (SPA) is a legal contract between a buyer and a seller that outlines the terms and conditions of the sale and purchase of shares in a company. It serves as the primary document governing the transaction, specifying the rights and obligations of both parties, the purchase price, and other critical details necessary to complete the sale.

How a Share Purchase Agreement Works

The SPA typically includes several key components:

  1. Purchase Price: The agreed amount to be paid for the shares.
  2. Conditions Precedent: Conditions that must be fulfilled before the transaction can be completed, such as regulatory approvals or due diligence.
  3. Representations and Warranties: Statements made by the buyer and seller regarding the state of the company and their authority to enter into the agreement.
  4. Covenants: Promises by the parties to take or refrain from certain actions before and after the sale.
  5. Indemnities: Provisions to compensate the buyer or seller for any losses arising from breaches of the agreement.
  6. Closing Mechanisms: Details of how and when the sale will be finalized, including the transfer of shares and payment.

Example

Consider a scenario where Company A agrees to purchase 100% of the shares of Company B for $10 million. The SPA would detail the purchase price, outline the steps for transferring the shares, and include representations and warranties from Company B about its financial health, outstanding liabilities, and other relevant matters. It would also specify any conditions that must be met before closing, such as approval from regulatory authorities.

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Related Terms

Adjusted EBITDA

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric used to assess a company's operational performance. It modifies the standard EBITDA by excluding non-recurring, irregular, or non-cash expenses to provide a more accurate reflection of ongoing profitability.

Angel Investors

Angel investors are affluent individuals who provide capital to startups or early-stage companies in exchange for equity ownership or convertible debt. These investors often offer not only financial support but also valuable business expertise and mentorship.

Anti-Dilution Provision

An anti-dilution provision is a clause in an investment agreement that protects an investor from dilution of their ownership percentage in the event that new shares are issued at a price lower than the investor originally paid. It is commonly included in venture capital and private equity agreements.

Bootstrapping

Bootstrapping in business refers to starting and growing a company using personal finances or the company’s operating revenues, rather than relying on external funding or venture capital. Entrepreneurs use their own resources and reinvest profits from initial sales to fund further growth, emphasizing financial independence and careful cash flow management.

Bridge Loan

A bridge loan is a short-term loan used to meet immediate financing needs while waiting for more permanent funding. It serves as a temporary solution to bridge the gap between the need for funds and the availability of long-term financing.

Cap Table

A Cap Table, or Capitalization Table, is a detailed spreadsheet or document that outlines the equity ownership, types of shares, and ownership percentages of a company. It includes information on founders, investors, and employees, as well as the dilution of shares over time through various funding rounds and option grants.

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