Share Purchase Agreement

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Service Details

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Service Details

Share Purchase Agreement (SPA)

Secure and Compliant Share Transfers in India

At Tax Pal Solutions, we facilitate smooth share transfers with expert SPA drafting in line with the Companies Act, SEBI norms, and regulatory requirements. Our services ensure legally enforceable, transparent, and timely transactions.

What is a Share Purchase Agreement?

A Share Purchase Agreement (SPA) is a legally binding contract between a buyer and seller of company shares. It clearly outlines each party’s rights, responsibilities, and obligations, ensuring a secure and structured transaction.

Key Elements Covered in an SPA:

Number of shares and sale price
Payment terms (lump sum or installments)
Conditions precedent for closing the deal
Representations and warranties of both parties
Process for transferring shares and finalizing the transaction

Benefits of a Well-Drafted SPA:

Protects both buyer and seller
Prevents misunderstandings
Provides legal protection
Ensures a safe and transparent transaction

Governing Laws for SPAs in India

Law	Purpose
Indian Contract Act, 1872	Governs contract formation, validity, and enforceability
Companies Act, 2013	Framework for corporate governance and share transfers
Specific Relief Act, 1963	Remedies for contract breaches, including specific performance
FEMA, 1999	Governs cross-border transactions and foreign investment compliance

Step-by-Step Share Purchase Process

Step 1: Letter of Intent (LOI) or Term Sheet

Preliminary, non-binding agreement
Outlines key deal points: proposed price, conditions, and intentions

Step 2: Due Diligence

Comprehensive examination of target company’s finances, legal status, and operations
Ensures regulatory compliance, especially for listed companies under SEBI rules

Step 3: Drafting the SPA

Negotiation of terms and preparation of a detailed agreement
Multiple revisions ensure both parties agree

Step 4: Board Approval

Board resolutions authorize share transfer
Confirms legal authority of signatories

Step 5: Execution and Pre-Closing Actions

Signing of SPA by both parties
Fulfillment of pre-closing conditions

Step 6: Closing Day

Transfer of shares to buyer
Payment of agreed purchase price
Exchange of necessary documents

Step 7: Post-Closing Formalities

Update shareholder register
File forms SH-4 (physical shares) or SH-6 (demat shares) with RoC

Key Clauses in an SPA

Clause	Description
Buyer, Seller & Target Identification	Names, addresses, and roles clearly defined
Preamble/Recitals	Context and purpose of the SPA
Definitions & Interpretation	Clarifies key terms like shares, purchase price, and closing date
Sale & Purchase of Shares	Core clause defining the transaction
Purchase Price & Consideration	Payment terms and adjustments
Conditions Precedent	Requirements to be met before closing
Representations & Warranties	Statements of fact and promises about company status
Rules of Conduct	Operational rules between signing and closing
Indemnification	Compensation for losses from breaches
Confidentiality	Protection of sensitive information
Governing Law & Dispute Resolution	Legal framework and dispute handling

Stamp Duty on SPAs

Transaction Type	Stamp Duty Rate	Responsibility	Collection Process
Transfer of Shares	0.015% of transaction value	Buyer	Demat: auto-collected; Physical: share transfer stamps or e-stamping
Issuance of Shares	0.005% of issue price	Issuer	Demat: collected by depository; Physical: e-stamping or franking

Importance:

Legally validates SPA
Makes the agreement enforceable in court
Required for official recognition

SPA vs Other Agreements

Aspect	Share Purchase Agreement (SPA)	Shareholders' Agreement	Asset Purchase Agreement
Purpose	Transfers ownership of shares	Governs shareholder relationships	Transfers specific assets
Focus	Buying/selling company stake	Rights & obligations of shareholders	Sale of assets like property, IP
Impact on Company	Ownership changes, company intact	No ownership change	Company retains non-sold assets/liabilities
Assets & Liabilities	Retained by company	Not applicable	Transferred with assets
Shareholder Involvement	Direct transfer to new owner	Focus on existing shareholders	Not directly involved
Common Use	Acquisition or sale of stake	Ongoing company operations	Buying/selling divisions or assets
Legal Structure	Formal share transfer documentation	Internal governance	Formal asset sale documentation