SPA (Share Purchase Agreement)

What Is an SPA?

A share purchase agreement (SPA) — sometimes called a stock purchase agreement — is the definitive legal document that governs the acquisition of a company through the purchase of its shares. It is the culmination of the M&A process: once signed and all conditions are satisfied, the transaction closes and ownership transfers.

The SPA is distinct from an asset purchase agreement (APA), where the buyer selects specific assets and liabilities rather than acquiring the entire legal entity. In a share purchase, the buyer acquires the target company as a going concern, including all assets, liabilities, contracts, and obligations — known and unknown.

Key Components of an SPA

Purchase Price and Payment

• Enterprise value — the headline price, typically adjusted for net debt and working capital at closing
• Closing adjustments — mechanisms to true up the price based on actual balance sheet items at the closing date
• Locked-box vs. completion accounts — two alternative pricing mechanisms (see below)
• Deferred consideration — any portion of the price payable after closing, including earnouts or seller notes

Representations and Warranties

Representations and warranties (reps and warranties) are statements of fact made by the seller about the target company. They cover areas including:

• Financial statements — accuracy and preparation in accordance with applicable accounting standards
• Material contracts — completeness of disclosed contracts and absence of breaches
• Tax compliance — filing of returns and payment of liabilities
• Litigation — disclosure of pending or threatened legal proceedings
• Employees — accuracy of employee information, compliance with employment laws
• Intellectual property — ownership and absence of infringement claims
• Environmental — compliance with environmental laws and absence of contamination

The scope and specificity of reps and warranties is heavily negotiated and directly impacts the risk allocation between buyer and seller — a key area covered in any thorough due diligence process.

Indemnification

The indemnification provisions define the buyer’s remedies if representations and warranties prove untrue or if specific risks materialise. Key parameters include:

• Basket (threshold) — the minimum aggregate loss before the buyer can claim (de minimis and tipping/true deductible)
• Cap — the maximum liability of the seller, typically expressed as a percentage of the purchase price
• Survival period — how long after closing the buyer can bring claims (typically 12–24 months for general warranties, longer for tax and title)
• Specific indemnities — bespoke protections for identified risks (e.g., pending litigation, tax exposures)

Closing Conditions

Conditions precedent that must be satisfied (or waived) before the transaction closes:

• Regulatory approvals — antitrust clearance, foreign investment review, industry-specific authorisations
• Third-party consents — change-of-control consents from customers, landlords, or counterparties
• No material adverse change (MAC) — the business has not suffered a material deterioration since signing
• Financing condition — if applicable, confirmation that the buyer has secured acquisition financing

Covenants

Obligations governing conduct between signing and closing:

• Seller covenants — operate the business in the ordinary course, no material transactions without buyer consent
• Non-compete — post-closing restrictions on the seller competing with the target
• Cooperation covenants — both parties’ obligations to seek regulatory approvals and facilitate closing

Locked-Box vs. Completion Accounts

Two pricing mechanisms dominate M&A transactions:

	Locked-Box	Completion Accounts
Price certainty	Fixed at signing	Adjusted at closing
Reference date	Historical balance sheet date (“locked-box date”)	Closing date
Risk of value leakage	Seller covenants prevent value extraction post-lock	Less relevant — price adjusts to actuals
Common in	European and Asia Pacific transactions	US transactions

SPAs in Asia Pacific

SPA drafting in Asia Pacific transactions — where the sell-side M&A process often spans multiple legal systems — must account for local legal requirements across jurisdictions. In Australia, SPAs follow common law conventions with extensive warranty schedules. In Japan, SPAs must navigate the Companies Act (会社法) requirements for share transfers. Southeast Asian transactions may require regulatory pre-approvals (e.g., foreign ownership restrictions in Thailand or Indonesia) as closing conditions. AI-native platforms like Amafi help advisors track the myriad closing conditions and regulatory requirements that arise in cross-border Asia Pacific transactions.