Agreement of Purchase and Sale of Shares by Shareholder Template

In plain language: Identifies the seller (the shareholder transferring shares), the buyer, and the target company, and sets out the background context for the transaction.

Common mistake: Using a trade name instead of the registered legal name for any party. Mismatched entity names create enforceability gaps and complicate share register updates.

In plain language: Specifies the exact number and class of shares being sold, the total purchase price, the per-share price, and how and when the price will be paid.

Common mistake: Describing shares only by percentage rather than by exact number. If additional shares are issued between signing and closing, a percentage-only description creates a dispute over what was actually sold.

In plain language: The seller's binding factual statements about their ownership of the shares, authority to sell, absence of liens, the company's financial condition, and material contracts — any false statement triggers indemnification.

Common mistake: Limiting representations to share ownership only and omitting company-level warranties. Without warranties on financials, material contracts, and litigation, the buyer assumes unknown liabilities with no recourse.

In plain language: The buyer's statements about their authority to enter the transaction, their financial capacity to pay, and — where relevant — that the purchase is for investment purposes and not a public resale.

Common mistake: Omitting buyer representations entirely. Without them, the seller has no contractual basis to recover if the buyer fails to close or misrepresents their financial capacity.

In plain language: Lists what must happen before either party is obligated to complete the transaction — board approvals, third-party consents, regulatory filings, and confirmation that all representations remain accurate.

Common mistake: Omitting a material adverse change condition. Without it, the buyer is obligated to close even if the company's financial condition deteriorates significantly between signing and closing.

In plain language: Specifies the closing date and location, what each party must deliver at closing — share certificates, executed transfer forms, resignation letters, releases — and the sequence of deliveries.

Common mistake: Not specifying what happens if one party fails to deliver at closing. Without a clear failure-to-close remedy, the non-defaulting party must resort to litigation to enforce their rights.

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 specifies how long after closing those obligations survive.

Common mistake: No cap on indemnification liability. Without a cap — typically set at 10–100% of the purchase price depending on risk — the seller faces unlimited exposure for every warranty breach, including minor ones.

In plain language: Restricts the seller from competing with the company or soliciting its customers and employees for a defined period and geography after closing.

Common mistake: Using a non-compete period longer than 2–3 years without specific justification. Courts in many jurisdictions strike down overly long restrictions in share sale contexts, voiding the protection entirely.

In plain language: Provides a post-closing true-up based on actual working capital, cash, and debt levels at closing compared to an agreed target, with a process for calculating and resolving any adjustment.

Common mistake: Defining working capital without specifying which line items are included or excluded. Ambiguous definitions routinely generate post-closing disputes that cost more to resolve than the adjustment itself.

In plain language: Specifies the jurisdiction whose law governs the agreement and the mechanism for resolving disputes — arbitration, mediation, or litigation in a named court.

Common mistake: Choosing a governing law with no connection to the parties or the company. Several jurisdictions apply local law regardless of what the contract says, and some courts refuse to enforce foreign choice-of-law provisions in M&A disputes.

A share purchase agreement is a legally binding contract between a seller and a buyer that governs the transfer of privately held company shares. It specifies the shares being sold, the purchase price and payment terms, the representations and warranties each party makes, the conditions that must be satisfied before closing, and the indemnification obligations that survive after the deal closes. It is the primary document in any private company share sale or partial buyout.

A share purchase agreement transfers ownership of the company itself — the buyer acquires the legal entity, including all its assets, contracts, liabilities, and tax history. An asset purchase agreement transfers only specified assets (equipment, inventory, IP, customer lists) without assuming the company's liabilities or legal history. Share deals are simpler to close because contracts transfer automatically, but the buyer inherits unknown liabilities; asset deals let the buyer cherry-pick what it wants but require re-contracting with customers, suppliers, and employees.

For any transaction above a nominal amount — or where the company has employees, contracts, IP, or debt — legal review is strongly recommended. A share purchase agreement transfers legal ownership of a business and creates indemnification obligations that can run for years. A lawyer can tailor representations to the due diligence findings, structure the indemnification mechanics correctly, and flag jurisdiction-specific issues that a template alone cannot anticipate. For simple co-founder buyouts below $50K, a template with professional review is often sufficient.

At minimum, a seller should warrant their title to the shares (free of liens), their authority to sell, the company's capitalization (no undisclosed shares outstanding), the accuracy of financial statements, compliance with material contracts and applicable law, the absence of undisclosed litigation, and the completeness of tax filings. Each warranty should be qualified by a disclosure schedule that lists known exceptions — anything not disclosed is fully indemnifiable if it turns out to be false.

An indemnification cap is the maximum amount a seller can be required to pay in compensation for warranty breaches after closing. Without a cap, a seller who accepted $500K for shares could theoretically face unlimited claims. Typical caps range from 10–25% of the purchase price for general representations and 100% for fundamental representations covering title, authority, and capitalization. Negotiating the cap — alongside the basket threshold and survival period — is one of the most important economic negotiations in any share purchase deal.

A working capital adjustment is a post-closing true-up mechanism that compares the company's actual working capital at closing to an agreed target. If working capital falls short — because the seller drew down cash or let payables build up before closing — the purchase price is reduced by the shortfall. If working capital exceeds the target, the buyer pays the seller the excess. This prevents a seller from stripping the business between signing and closing.

In most jurisdictions, non-compete clauses in share purchase agreements are treated more favorably by courts than those in employment contracts, because the seller received substantial consideration — the purchase price — in exchange for the restriction. Courts generally enforce them if they are reasonable in duration (typically 2–3 years), geographic scope, and the breadth of restricted activities. California restricts non-competes even in business sale contexts, though broader restrictions are permitted than in the employment setting.

If a condition precedent is not satisfied by the agreed drop-dead date, either party may typically terminate the agreement without liability, and any deposit or escrow amount is returned to the buyer. If a party fails to use commercially reasonable efforts to satisfy conditions within their control, the other party may have a damages claim for breach. This is why setting a realistic drop-dead date — and including a commercially reasonable efforts standard — is critical.

An earn-out is a contingent portion of the purchase price paid after closing if the company hits defined financial targets — typically revenue, EBITDA, or customer milestones over 1–3 years post-closing. Sellers accept earn-outs when buyers are uncertain about the company's forward performance; buyers use them to bridge a valuation gap without paying full price upfront. Earn-outs create significant post-closing disputes if the metrics, calculation methodology, and buyer's operational obligations are not defined with extreme precision.

In most common-law jurisdictions — the US, Canada, and the UK — a share purchase agreement does not require notarization to be legally binding. Signatures of authorized parties are sufficient. Some civil-law countries in continental Europe require a notarial deed for share transfers in private limited companies. Confirm local requirements before closing, particularly for GmbH shares in Germany, SARL interests in France, and SRL shares in Italy and Spain.