Corporate Governance
Stock Purchase Agreement
Governs the sale and purchase of shares in a corporation, including representations, warranties, and closing conditions.
Overview
Governs the sale and purchase of shares in a corporation, including representations, warranties, and closing conditions.
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Who Needs This Document?
Investors acquiring equity, founders selling shares, companies involved in acquisitions, and private equity firms.
When Do You Need This?
Required during investment rounds, secondary share sales, M&A transactions, or any situation where company shares change ownership.
Key Provisions
A well-drafted document should include the following essential provisions:
- Number of shares, purchase price, and payment terms
- Representations and warranties from both buyer and seller
- Closing conditions and post-closing obligations
- Indemnification provisions and dispute resolution
Frequently Asked Questions
- Why do stock purchase agreements rely so heavily on representations and warranties?
- Because the buyer is acquiring the whole company, including its liabilities, representations and warranties let the seller confirm facts like clean title to the shares, accurate financial statements, and no undisclosed litigation. If a representation turns out to be false, it gives the buyer a contractual basis to claim damages after closing, often the only real recourse once the deal is done.
- How is a stock purchase different from an asset purchase?
- A stock purchase transfers ownership of the company itself, including all its existing liabilities and contracts, while an asset purchase lets the buyer select specific assets and generally leave unwanted liabilities behind with the seller. Buyers often prefer asset deals for that reason, while sellers often prefer stock deals since they exit more cleanly.
- What is a holdback or escrow used for after closing?
- Placing a portion of the purchase price in escrow or holding it back for a defined period after closing gives the buyer a source of funds to draw from if a representation turns out to be false or an indemnification claim arises. It reduces the buyer's need to chase the seller directly for money once the deal has closed and the seller may be harder to reach.
Related Documents
- Shareholder AgreementGoverns the relationship between shareholders of a corporation, protecting minority rights and establishing corporate governance rules.
- Non-Disclosure Agreement (NDA)A legally binding contract that establishes confidentiality between parties sharing sensitive information, trade secrets, or proprietary data.
- Letter of Intent (LOI)A preliminary document outlining the key terms and conditions of a proposed transaction before a definitive agreement is drafted.