Agreement of Purchase and Sale of Shares Template

In plain language: Identifies the seller and buyer as legal entities, specifies the exact number and class of shares being transferred, and confirms the seller holds good and marketable title free of encumbrances.

Common mistake: Describing shares by percentage only, without stating the actual number and class. If new shares are issued between signing and closing, a percentage figure becomes ambiguous and can trigger closing disputes.

In plain language: States the total consideration, the payment method (cash, notes, or shares), the schedule for payment, and any post-closing price adjustments such as working capital true-ups or earn-out provisions.

Common mistake: Omitting a working capital adjustment mechanism. Without one, the seller can drain cash or run up payables between signing and closing, effectively reducing the value the buyer receives without reducing the stated price.

In plain language: The seller's binding factual statements about the company's ownership, financial condition, absence of litigation, compliance with laws, material contracts, and tax obligations — relied upon by the buyer to complete the deal.

Common mistake: Accepting overly qualified representations with pervasive 'to Seller's knowledge' carve-outs. Knowledge-qualified reps shift risk to the buyer even for matters the seller could have discovered with reasonable inquiry.

In plain language: The buyer's statements confirming legal capacity, authority to complete the purchase, source of funds, and absence of any conflict with other agreements — assuring the seller the deal can close.

Common mistake: Omitting buyer representations entirely on the assumption that only the seller needs to warrant. If the buyer cannot fund or close, the seller needs a breach-of-contract claim grounded in written representations.

In plain language: Lists the specific requirements each party must satisfy before either is obligated to complete the transaction — including regulatory approvals, third-party consents, bring-down of representations, and absence of a material adverse change.

Common mistake: Drafting conditions so broadly that either party can manufacture a failure to close without consequence. Every condition should have a clear objective standard and specify which party bears the obligation to satisfy it.

In plain language: Specifies the closing date, location (or virtual process), and the documents and funds each party must deliver at closing — including share certificates, corporate resolutions, officer resignations, and legal opinions.

Common mistake: No closing deliverables checklist. Without a defined list, closing becomes a negotiation rather than an execution — delaying completion and creating disagreements about what was promised.

In plain language: Sets out each party's obligation to compensate the other for losses caused by a breach of representations, warranties, or covenants, and establishes caps, floors, and time limits on indemnification claims.

Common mistake: No cap or basket on indemnification. Without a cap, the seller's liability is theoretically unlimited — most sellers will not sign such a clause, and the absence of agreed limits is one of the most common deal-closing obstacles.

In plain language: Prevents the seller from starting or joining a competing business, and from soliciting the company's employees or customers, for a defined period after closing.

Common mistake: Using the same non-compete language regardless of the seller's role in the business. A founder-operator requires broader restrictions than a passive minority shareholder — courts will strike down overbroad clauses, voiding protection entirely.

In plain language: Restricts both parties from disclosing the terms of the transaction or confidential information about the company obtained during due diligence — both before and after closing.

Common mistake: No carve-out for required regulatory or legal disclosures. Without one, a party who must disclose under securities law or a court order is technically in breach of the confidentiality clause.

In plain language: Specifies which jurisdiction's laws govern the contract, how disputes are resolved (arbitration, mediation, or litigation), and confirms this agreement supersedes all prior representations and discussions.

Common mistake: Choosing a governing jurisdiction with no connection to either party or the target company. Several jurisdictions — including Delaware and Ontario — have well-developed corporate law that produces predictable outcomes; choosing an unfamiliar jurisdiction creates unnecessary legal uncertainty.

An agreement of purchase and sale of shares is a legally binding contract under which a seller transfers ownership of private company shares to a buyer for an agreed purchase price. It governs every aspect of the transaction — price, payment terms, representations about the company, closing conditions, indemnification, and post-closing restrictions. It is the primary legal document in any private company share acquisition and replaces informal letters of intent once both parties are ready to commit to binding obligations.

In a share purchase, the buyer acquires ownership of the company itself — including all its assets, liabilities, contracts, and contingent obligations. In an asset purchase, the buyer cherry-picks specific assets and assumed liabilities, leaving everything else with the seller's corporate entity. Share purchases are simpler to complete — contracts and licenses transfer automatically — but the buyer inherits all historic liabilities. Asset purchases offer cleaner liability protection but require reassigning every material contract, which often triggers third-party consent requirements.

Standard seller representations cover: authority and capacity to sell, clear title to the shares free of encumbrances, accuracy of financial statements, completeness of material contracts, absence of undisclosed litigation, compliance with applicable laws, accuracy of tax filings, and no material adverse change in the business since the last financial statements. Each representation that cannot be given cleanly should be qualified in a disclosure schedule attached to the agreement.

For any transaction involving a privately held company, legal review is strongly recommended. A share purchase agreement creates binding representations, indemnification obligations, and post-closing restrictions that can result in significant financial exposure if drafted incorrectly. A template provides a solid structural foundation, but a commercial lawyer familiar with the applicable jurisdiction should review and adapt it for the specific transaction — particularly the indemnification structure, conditions precedent, and non-compete provisions.

An earn-out is a post-closing payment mechanism under which a portion of the purchase price is contingent on the acquired business achieving defined financial or operational targets — typically over 12–36 months post-closing. Earn-outs bridge valuation gaps when a seller believes the business will outperform current financials and the buyer is not willing to pay a premium upfront. They are commonly used in founder exits where the seller remains involved post-closing. Earn-outs require very precise drafting of the measurement metrics, accounting methodology, and dispute resolution process to avoid post-closing litigation.

In most private company share transactions, the period between signing and closing runs 30–90 days. The duration depends on the complexity of required regulatory approvals (competition/antitrust filings, industry licences), third-party consent requirements (landlords, key suppliers, lenders), and the extent of outstanding due diligence. Simple transactions with no regulatory requirements can close in as few as 5–10 business days. The long-stop date in the agreement should reflect realistic timelines with some buffer for unexpected delays.

Representations and warranties insurance (RWI) is a policy that pays out to the buyer if a seller's representation turns out to be inaccurate post-closing, effectively replacing the seller as the source of indemnification. It is increasingly common in mid-market transactions ($10M–$250M) because it allows the seller to receive sale proceeds without retaining escrow, and gives the buyer a well-capitalized insurer to claim against. Premiums typically run 2–4% of the coverage limit.

Non-competes included in a legitimate business sale agreement are generally treated more favorably by courts than employment non-competes, because the seller receives meaningful consideration — the purchase price — in exchange for the restriction. Courts in most jurisdictions enforce them if they are reasonable in duration (typically 2–3 years for a business sale), geographic scope, and breadth of restricted activity. California law is a notable exception — it bans most non-competes even in business sale contexts unless the seller disposes of their entire ownership interest.

If the buyer fails to close without a legitimate termination right, the seller's typical remedies include retaining a deposit, claiming specific performance (a court order compelling the buyer to close), or suing for damages equal to the deal value lost. If the seller fails to close without a legitimate termination right, the buyer may seek specific performance or damages. Specific performance is often the preferred remedy in share transactions because damages are difficult to quantify. The agreement should expressly state that specific performance is an available remedy to avoid arguments that money damages are adequate.