Share Purchase Agreement

Key Clauses Every Share Purchase Agreement Must Include

Here is a clause-by-clause breakdown of what a comprehensive SPA looks like in practice:

1. Recitals

The recitals open the agreement and set the stage — identifying the parties, stating the purpose of the transaction, and summarising the commercial context. These should be written in plain language, free of legal jargon, so all parties clearly understand the intent of the deal.

2. Definitions and Interpretation

Ambiguity is the enemy of a good contract. This clause assigns precise meanings to all key terms used throughout the document. In standard SPA practice, defined terms are capitalised (e.g., "Shares," "Closing Date," "Purchase Price") to make them instantly identifiable.

3. Consideration

Under Section 2(d) of the Indian Contract Act, 1872, consideration is an essential element of any enforceable contract. In a SPA, the consideration clause must specify:

1. The exact purchase price for the shares
2. The form of payment — cash, stock swap, or a combination
3. Whether a down payment or earnest money is involved
4. The payment schedule, including any deferred tranches or milestone-linked disbursements

4. Sale of Shares

This is the operative heart of the agreement. It formally records that the seller agrees to sell — and the buyer agrees to purchase — a defined number of shares. It must also address:

1. The timeline for completion of the transfer
2. Any special rights attached to the shares (e.g., preference rights, redemption options)
3. Whether the seller retains any right to buy back shares at a later stage

5. Conditions Precedent

This clause lists all approvals, consents, and regulatory clearances that must be obtained before the transaction can proceed. Common examples include approvals from SEBI, the Competition Commission of India (CCI), or foreign investment regulators. The clause should also name the party responsible for obtaining each approval and set a timeline.

6. Closing Conditions and Completion

The closing clause governs what happens on the actual date the deal is executed — the exchange of documents, delivery of share certificates or demat transfers, and any post-completion obligations. Clear closing mechanics prevent last-minute disputes about whether a deal has actually been "done."

7. Representations by the Seller (Vendor Representations)

Before a buyer commits capital, they need to know exactly what they're buying. The seller's representations provide a snapshot of the company at the time of sale, covering:

1. Financial condition (assets, liabilities, outstanding debt)
2. Details of directors and shareholders
3. Pending litigation or regulatory proceedings
4. Title to assets and intellectual property

If any representation turns out to be false, the buyer has legal recourse.

8. Warranties

Warranties go beyond representations — they are binding promises about the state of the business. If a warranty is breached, the buyer is entitled to compensation. Common warranty areas include:

1. Accuracy of financial statements
2. Compliance with tax obligations
3. Status of material contracts
4. Employment matters and labour law compliance
5. Regulatory licences and permits

A robust warranty schedule is often the most heavily negotiated section of any SPA.

9. Buyer's Representations

The buyer also makes representations — typically confirming their legal authority to enter the transaction, their corporate status, and their financial capacity to complete the purchase. This gives the seller comfort that the counterparty is legitimate and capable of performing.

10. Covenants

Covenants are forward-looking obligations that one or both parties agree to fulfil — either before closing (pre-closing covenants) or after (post-closing covenants). Common examples include the seller's obligation to continue running the business normally until the deal closes, or the buyer's obligation to maintain certain employment arrangements post-acquisition.

11. Indemnification

The indemnification clause is the deal's safety net. It specifies who compensates whom if losses arise from a breach of the agreement, misrepresentation, or undisclosed liability. This clause typically includes:

1. The scope of indemnifiable losses
2. Caps and deductibles on indemnity claims
3. Time limits within which claims must be raised
4. Any carve-outs or exceptions

12. Confidentiality and Data Protection

Given the volume of sensitive commercial, financial, and personal information exchanged during an M&A process, the SPA must include strong confidentiality obligations. In India, drafting these provisions also requires compliance with applicable data protection legislation. If parties are subject to GDPR (e.g., cross-border deals with EU entities), those obligations must be reflected as well.

13. Jurisdiction and Governing Law

The SPA must specify which court has jurisdiction over any disputes arising under it — typically the court having jurisdiction over the registered office of the target company or a mutually agreed neutral forum. It should also state the governing law (e.g., laws of India), especially in cross-border transactions.

Before You Sign: Key Diligence Checklist

A SPA is only as good as the information it's based on. Before finalising the agreement, ensure:

1. Legal due diligence has been completed on the target company
2. Financial statements have been audited and reviewed
3. All regulatory approvals have been identified and timelines assessed
4. Warranty disclosure schedules have been thoroughly reviewed
5. Indemnity caps and baskets have been negotiated to reasonable levels
6. The post-closing integration plan is reflected in relevant covenants