Legal Chronicle

The core legal components of a Share Purchase Agreement (SPA) form the foundation of a successful share transaction, providing clarity, protection and enforceability to all parties involved. These components typically include:

• Definitions:
  The definitions clause serves to clearly establish the meaning of key terms or concepts that appear multiple times throughout the share purchase agreement. By assigning a consistent interpretation to each defined term, this clause ensures clarity, avoids ambiguity and promotes uniform understanding across the entire agreement whenever those terms are used.
• Sale and Purchase of Shares:
  This clause outlines the number and type of shares being transferred, the purchase price and the mode and timing of payment. It may also include details like split payments, escrow arrangements like an escrow certificate, which is a formal document issued by the escrow agent (typically a third-party bank, law firm or trustee) that confirms receipt, holding and eventual release of the escrowed assets, such as funds, share certificates or signed documents. In addition, whether the transaction in the agreement involves full or partial ownership transfer.
• Conditions Precedent:
  SPAs should be signed and completed simultaneously. However, in practice, a time gap often exists between Signing (when the agreement is executed) and Completion (when the actual transfer of shares occurs). This delay is typically due to factors such as the buyer’s due diligence, securing regulatory approvals or arranging funds. This gap in timing can give rise to disputes, as circumstances may change between Signing and Completion, potentially challenging the original mutual understanding.
  To address this, SPAs include Conditions Precedent, specific obligations that must be met before completion can occur. These conditions ensure that both parties remain equally committed to closing the transaction. If the CPs are not satisfied by an agreed longstop date, the parties may renegotiate, waive the unmet conditions or allow the agreement to lapse entirely. CPs thus serve as a crucial mechanism to manage risk and preserve transactional intent during the interim period.
• Conditions Subsequent:
  Conditions Subsequent are post-closing obligations that parties to a Share Purchase Agreement must fulfill after the transaction is completed. These typically include legal filings, payment of stamp duty, updating share registers and issuing share certificates. Unlike conditions precedent, which must be satisfied before closing, conditions subsequent ensure all regulatory and administrative requirements are completed to give full legal effect to the transaction.
• Representations and Warranties:
  These are factual statements made by the parties, especially the seller, about the company’s legal standing, financial condition, compliance, litigation status and ownership of shares. They serve to build trust and provide the basis for indemnification if the facts turn out to be false.
• Total Consideration: Consideration is a critical and often contentious element in negotiations between a buyer and seller, typically being one of the last aspects to be finalized. This is because the consideration amount depends on what exactly the buyer is acquiring, whether it’s just specific assets or the company as a going concern, with room for exceptions. Accurately reflecting the payment structure in the share purchase agreement can be complex, especially when multiple sellers are involved. In such cases, ensuring clarity around how the consideration is calculated, allocated and paid becomes essential to avoid disputes and ensure smooth execution of the transaction.
• Restrictive Covenants:
  These are legally binding promises made by the parties to perform or refrain from certain actions. Pre-closing covenants may restrict the seller from making major business changes, while post-closing covenants may include non-compete clauses or obligations to assist with regulatory filings.
• Indemnities:
  Indemnity clauses protect one party (typically the buyer) from losses resulting from breaches of the SPA, including misrepresentation, undisclosed liabilities or legal claims. They usually define caps, baskets and time limits to control risk exposure.
• Confidentiality:
  The confidentiality clause in a share purchase agreement restricts any party from sharing sensitive information with third parties without prior consent from the other parties involved, except in exceptional situations like legal or regulatory obligations. In transactions involving highly confidential or commercially sensitive details, any breach of this clause can even justify termination of the agreement. The importance of maintaining strict confidentiality is heightened when the deal involves a publicly listed company, where information leaks can have serious legal and market implications.
• Force Majeure:
  This is an essential clause because it protects both parties from being held liable if unforeseen, uncontrollable events like natural disasters, pandemics, wars or governmental shutdowns make completing the share transfer impossible or impracticable. By clearly defining what qualifies as force majeure and setting out procedures for notice, suspension of obligations, mitigation and potential termination, the clause ensures certainty and fair allocation of risk while preserving business relationships during crises.
• Cumulative Remedies:
  This clause emphasizes that the rights and remedies available to each party under the Share Purchase Agreement are cumulative, meaning they are in addition to and not in substitution of any other legal or equitable remedies the parties may have. Exercising one remedy does not limit the right to pursue others. Furthermore, if a dispute arises and legal proceedings are initiated, the prevailing party is entitled to recover reasonable legal costs and expenses, including attorney’s fees. This provision reinforces legal protection and deters frivolous litigation by ensuring that the successful party is compensated for the costs incurred in enforcing the agreement.
• Termination Clauses:
  This is a formal mechanism for either party to exit the agreement before the transaction is completed. This clause becomes particularly important when unforeseen issues arise that prevent the deal from closing as intended. Common grounds for termination include the failure to satisfy conditions precedent by the agreed long stop date, such as obtaining regulatory approvals, securing third-party consents or fulfilling other key obligations. Additionally, a party may terminate the agreement if the other commits a material breach of its representations, warranties or covenants. In some cases, termination rights may also be triggered if a regulatory authority rejects the proposed transaction. By clearly defining these exit routes, the termination clause helps protect both parties from being bound to a deal that cannot or should not proceed and provides legal clarity on the consequences of termination.
• Governing Law and Dispute Resolution: The Governing Law and Dispute Resolution clause is a critical component of a Share Purchase Agreement (SPA), as it determines the legal framework under which the agreement will be interpreted and enforced. It typically specifies the applicable law, for example, the laws of India that will govern the rights and obligations of the parties. Additionally, this clause outlines the mechanism for resolving disputes, which is often arbitration conducted in accordance with the Arbitration and Conciliation Act, 1996. It may also detail the seat and venue of arbitration, the language to be used and the number of arbitrators. In some cases, the clause includes a choice of jurisdiction for court proceedings in matters not subject to arbitration, such as seeking interim relief.