What is a share purchase agreement (SPA)?

SPAs are legally binding contracts legitimizing the transfer of shares from ownership by one party to another. A transfer will always involve the buying and selling parties, but may also include other stockholders; employees or board members, for example. 

In M&A activity and secondary deals, SPAs help streamline share transfers and align interests across shareholders.

Agreeing on the price is only the start. Every SPA includes a set of terms and conditions that spell out what each side must do to complete the sale. For smaller companies, this is usually fairly straightforward. But for larger businesses, there may be a great number of shareholders involved, meaning extensive negotiations and/or extraordinary general meetings, in order to iron out all the small details across a number of interested parties.

It’s not all about financial terms and regulatory compliance either. SPAs can also dictate the future operations of the company as well as include certain clauses connected to the character or condition of the purchaser. In private stock investment, these are particularly common, and can be fairly idiosyncratic.

SPAs are often extensive and aim to deal with a wide range of possibilities. But the essential information contained in them usually falls into one of the following categories:

• Final price
• Conditions for completion
• Share privileges
• Warranties

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Final price

The final price, usually comes at the top of agreements, is the most critical thing to get right. But it’s also the most straightforward part of most SPAs.

Final price will have to be declared for various financial transparency checks. Inflation or currency exchange changes should only factor into extraordinarily protracted negotiations. 

However, methods of payment can be more tricky, along with any installment program that has been agreed, including penalties for late payments.

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Conditions for completion

The more complicated and specific clauses for an SPA are typically found in the conditions for completion, which also tie into financial compliance. If these conditions are infringed upon or found to be non-compliant, then the sale will not stand up legally.

Conditions for completion usually include terms and conditions such as restricting sales to certain persons (those under 18, for example, or with a criminal record) or confirming that neither party can arbitrarily pull out of their commitment.

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Share privileges

The share privileges govern which party or parties have essential control over each part of the company. This might include issues such as hiring and firing, future sales, boardroom veto powers or special voting rights.

These clauses often vary widely between SPAs, as each business will have its own particular way of operating and private sellers may well insist on retaining day-to-day boardroom control and/or veto control, despite selling some or all of the stock.

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Warranties

Warranties mainly apply to the sellers in the transaction. These clauses are set up to ensure that the company is in the condition that is claimed, and to lay out penalties and compensation in case of infringement or inaccuracy.

This guide on what to look for before investing in late-stage private companies offers context on why warranties — and deeper diligence — matter even more in secondary transactions.

As a balance for the conditions of completion, warranties provide security and transparency for the buyer. This is particularly important for private stock investors, as there is generally less regulation and openly available information than on the public markets.

For investors seeking transparent and trustworthy stock acquisition, Augment* is here to help.

Augment’s platform is based around private secondary transactions, facilitating the buying and selling shares of pre-IPO companies. Private stock investment is a different world to public markets, usually involving more complete acquisitions. Augment provides tools and resources to help simplify private stock investment. 

This primer on the J-curve in pre-IPO investing explains why platforms like Augment play a vital role in reducing risk and friction — especially in deals structured through SPAs.

Ultimately, Augment and SPAs aim to assist shareholders and accredited investors in achieving a clearer view of pricing and a compliant pathway to transact, subject to thorough due diligence.