Stock Purchase Agreement Template

In plain language: Identifies the buyer and seller as legal entities, states the number and class of shares being sold, and summarizes the purpose of the agreement.

Common mistake: Using a trade name instead of the seller's registered legal entity name. If the seller entity differs from the share record holder, the transfer will fail at the registry level.

In plain language: States the total consideration, how and when it will be paid — whether at closing, in installments, or partially through an earn-out — and the currency.

Common mistake: Omitting a working capital target and adjustment mechanism. Without one, a seller can drain receivables or inflate payables before closing, reducing the business's value without triggering a price reduction.

In plain language: Factual statements the seller makes about the company — its legal standing, capitalization, financial statements, absence of litigation, IP ownership, and material contracts — as of signing and closing.

Common mistake: Accepting unqualified representations without knowledge qualifiers on matters the seller cannot directly control. 'To Seller's knowledge' qualifiers protect against liability for unknown issues; omitting them exposes the seller to indemnification claims for facts they had no way to verify.

In plain language: Factual statements the buyer makes about its own legal authority, financing capacity, and absence of conflicts — confirming it can legally close the transaction.

Common mistake: Skipping buyer reps entirely for individual buyers. Even individual acquirers need to represent that they are not subject to regulatory restrictions, sanctions, or financing contingencies that could prevent closing.

In plain language: Lists the specific requirements each party must satisfy — board approvals, regulatory clearances, third-party consents, and delivery of documents — before the share transfer and payment are exchanged.

Common mistake: Failing to list the specific third-party consents required by material contracts (bank facilities, key leases, or major customer agreements). Missing a consent triggers a default in the underlying contract at the moment of transfer.

In plain language: Defines each party's obligation to compensate the other for losses arising from breaches of the agreement, with thresholds (basket), caps, and survival periods governing the scope of exposure.

Common mistake: Setting a cap equal to 100% of the purchase price for all claims without carving out fraud. Courts expect fraud claims to be uncapped — including the cap on fraud can be read as an attempt to limit liability that courts will void anyway, creating uncertainty on the entire cap structure.

In plain language: Restricts the seller from competing with the acquired business or soliciting its customers and employees for a defined post-closing period and geography.

Common mistake: Using the same non-compete duration and geography as an employment contract. M&A non-competes are generally held to a higher standard of reasonableness — courts in most jurisdictions enforce 2–5 year restrictions in business sale contexts, which would be struck down for an employment relationship.

In plain language: Specifies which jurisdiction's law governs the agreement, how disputes are resolved (arbitration or litigation), the agreed venue, and the required format for formal notices between parties.

Common mistake: Selecting a governing law with no substantive connection to either party or the company. Delaware, New York, and Ontario are commonly chosen for their well-developed M&A case law; choosing an unfamiliar jurisdiction for convenience can produce unpredictable outcomes if litigation arises.

A stock purchase agreement is a legally binding contract between a buyer and a seller that governs the acquisition of shares in a corporation. It specifies the number and class of shares sold, the total purchase price and payment mechanics, each party's representations and warranties about the business and transaction, the conditions that must be met before closing, and each party's indemnification obligations for post-closing claims. It is the foundational document in any share-based business acquisition.

In a stock purchase, the buyer acquires the shares of the target company and steps into ownership of the entire legal entity — including all assets, liabilities, contracts, and obligations. In an asset purchase, the buyer selects specific assets and liabilities to acquire, leaving the rest with the seller's entity. Buyers often prefer asset deals to avoid inheriting unknown liabilities; sellers often prefer stock deals for tax efficiency and cleaner deal mechanics. The choice has significant tax, liability, and consent implications in both structures.

You need a stock purchase agreement whenever shares in a private company are being sold or acquired — including full business acquisitions structured as share sales, founder-to-investor equity purchases in funding rounds, and secondary share transfers between existing and new shareholders. A signed share certificate alone is insufficient; the SPA creates the binding obligations, conditions, and post-closing protections that govern the entire transaction.

Representations and warranties are factual statements each party makes about themselves and the transaction, as of the signing and closing dates. Seller reps typically cover the company's legal standing, capitalization, financial statements, material contracts, IP ownership, litigation, and taxes. Buyer reps cover authority and financing. If a representation is false, the other party can seek indemnification for resulting losses — making accurate disclosure schedules essential for the seller's protection.

Indemnification requires the breaching party to compensate the other for losses arising from a breach of representations, warranties, or covenants. Most SPAs include a basket (the minimum aggregate loss before claims can be made, typically 0.5–1% of purchase price), a cap (the maximum total recoverable, often 10–20% of purchase price for general reps), and a survival period (12–36 months for most reps, longer for fundamental and tax reps). Fraud and intentional misrepresentation are typically carved out of all limitations.

No. A stock purchase agreement governs the transaction mechanics of buying and selling shares — price, conditions, reps, and closing. A shareholders agreement governs the ongoing relationship between shareholders after the deal closes — voting rights, dividend policy, transfer restrictions, drag-along and tag-along rights, and dispute resolution among co-owners. Most acquisitions involving multiple continuing shareholders require both documents.

An earn-out is a portion of the purchase price that is contingent on the acquired business meeting defined revenue, EBITDA, or operational milestones after closing — typically over 1–3 years. It bridges valuation gaps between buyer and seller by deferring part of the price until performance is proven. Earn-outs require a precisely defined calculation methodology; vague milestones are the most common cause of post-closing earn-out litigation.

For any meaningful business acquisition or significant equity transfer, legal review is strongly recommended. An SPA creates complex representations, indemnification exposure, and post-closing obligations that can result in material financial liability if poorly drafted. A template is a sound starting point that saves drafting time and legal fees, but a lawyer familiar with the governing jurisdiction's M&A practice should review and customize the document before execution — particularly for the indemnification structure, disclosure schedules, and tax treatment.

A closing condition is a specific requirement that must be satisfied before either party is obligated to complete the transaction. Common conditions include regulatory approvals, third-party consents (lenders, landlords, key customers), board resolutions, accuracy of representations at closing, and absence of a material adverse change. If a condition is not met by the outside date, the party it protects may terminate the agreement without penalty.