Share Purchase Agreement — Key Clauses and Drafting Guide 2026

What Is a Share Purchase Agreement (SPA)?

A Share Purchase Agreement is the definitive agreement for the acquisition of shares in a company — whether the buyer is acquiring 100% (full acquisition), majority stake (controlling acquisition), or minority stake (financial investment). The SPA governs: (a) the shares being sold and the purchase price, (b) representations and warranties about the target company, (c) conditions precedent to closing, (d) indemnification for breach of warranties, (e) post-closing covenants, and (f) dispute resolution. Unlike a Share Subscription Agreement (where new shares are issued by the company), an SPA involves the sale of EXISTING shares by current shareholders to the buyer.

Key Clauses — Comprehensive Guide

1. Definitions and Interpretation

Define all key terms comprehensively: "Shares" — the specific shares being sold, with distinctive numbers/folio. "Purchase Price" — the total consideration. "Closing Date" — the date of actual transfer. "Material Adverse Change (MAC)" — a significant negative change in the target's business. "Permitted Leakage" — allowable outflows between signing and closing (dividends, management salaries). "Target Company" — the company whose shares are being sold. "Business" — the target company's business as described.

2. Sale and Purchase

"The Seller hereby agrees to sell, and the Buyer hereby agrees to purchase, [Number] equity shares of Rs. [Face Value] each in [Target Company], representing [X]% of the issued and paid-up share capital, for a total consideration of Rs. [Amount]."

Price Adjustment: Common mechanisms: (a) Locked Box — price fixed on a historical balance sheet date (no post-signing adjustment). The seller gives a "no leakage" warranty. Simpler but less precise. (b) Completion Accounts — price adjusted based on actual net assets/working capital on the closing date. Requires post-closing audit. More precise but more complex and disputatious.

3. Conditions Precedent (CP)

Conditions that must be satisfied BEFORE the transaction closes: (a) regulatory approvals — CCI (Competition Act), SEBI (for listed targets), RBI/FEMA (for foreign buyers), sector-specific approvals, (b) shareholder approvals — board and member resolutions, (c) lender consents — change of control provisions in loan agreements, (d) no MAC — no material adverse change between signing and closing, (e) warranties remaining true — seller's representations are accurate at closing, (f) key employee retention — specified employees have not resigned. Long-stop date: if CPs are not satisfied by [Date]: either party may terminate.

4. Representations and Warranties

The SELLER represents and warrants about the target company. This is the most extensively negotiated section. Categories:

Title: The seller has clear title to the shares — free from encumbrances, pledges, and claims.

Corporate: The target is validly incorporated, authorized capital is correct, financial statements are accurate, no undisclosed liabilities.

Financial: Accounts present a true and fair view, no off-balance-sheet liabilities, no unusual transactions.

Tax: All tax returns filed, taxes paid, no pending tax disputes (or disclosed), no contingent tax liabilities.

Material Contracts: All material contracts are valid, no default, no termination risk due to change of control.

Litigation: No pending or threatened litigation (or disclosed in the disclosure schedule).

Employees: Employee details accurate, no pending labor disputes, compliance with labor laws.

IP: The target owns or licenses all IP used in its business — no infringement claims.

Environmental: Compliance with environmental laws — no contamination or cleanup obligations.

Regulatory: All licenses and permits are valid and current — no regulatory proceedings.

5. Disclosure Schedule

The disclosure schedule lists EXCEPTIONS to the warranties — "except as disclosed in Schedule [X]." This is the seller's opportunity to carve out known issues. The buyer must review the disclosure schedule carefully — disclosed matters are excluded from warranty protection (the buyer is deemed to accept them). Well-drafted disclosure schedules are specific and detailed — vague disclosures ("there may be some tax disputes") are inadequate.

6. Indemnification

The seller agrees to compensate the buyer for losses arising from breach of warranties. Key negotiation points: (a) Basket/Threshold: The buyer can claim indemnity only if total losses exceed Rs. [Amount] — the "basket" filters out small/trivial claims, (b) Cap: Maximum indemnity — typically 10-30% of the purchase price (rarely 100%), (c) Time Limit: Indemnity claims must be made within [12-24] months of closing (tax warranties: longer — 6-7 years to cover tax assessment periods), (d) Escrow: A portion of the purchase price (10-15%) is held in escrow to secure indemnity claims, (e) Exclusions: Consequential damages, loss of profits — often excluded from indemnity.

7. Closing Mechanics

(a) Closing date — [Date] or within [X] days of CP satisfaction, (b) deliverables by seller: share certificates, signed SH-4, Board Resolution approving transfer, NOCs, (c) deliverables by buyer: purchase price payment (wire transfer), (d) simultaneous exchange — shares and money exchanged simultaneously (or through escrow), (e) post-closing filings — Form PAS-3 (not needed for secondary sale), filing with ROC if applicable.

8. Post-Closing Covenants

(a) Non-compete — seller agrees not to compete for [2-5] years, (b) non-solicitation — not soliciting target's employees or customers, (c) transition assistance — seller assists buyer in understanding the business for [3-6] months, (d) confidentiality — both parties keep the transaction terms confidential.

9. Material Adverse Change (MAC) Clause

The MAC clause allows the buyer to walk away (or renegotiate the price) if a significant negative event occurs between signing and closing. Definition of MAC: "any event that has, or could reasonably be expected to have, a material adverse effect on the business, financial condition, or results of operations of the Target." Carve-outs (events NOT considered MAC): general economic downturn, industry-wide changes, changes in law, force majeure — because these affect all companies, not just the target.

Tax Implications

(a) Seller — Capital Gains: LTCG (>24 months for unlisted shares) at 12.5%; STCG (≤24 months) at slab rates. (b) Stamp Duty: 0.015% of consideration (uniform across India after Finance Act, 2019). (c) Section 56(2)(x): If purchase price is below FMV: the buyer may be taxed on the difference. (d) Section 50CA: If seller receives less than FMV: FMV is deemed as consideration for capital gains. (e) TDS: Section 194-IA does not apply to share transfers — but Section 195 applies for payments to non-residents.