Share Purchase Agreement in India: Complete Guide 2025
A Share Purchase Agreement (SPA) is the most important legal document you need when you want to buy or sell shares in a private company. If you're an entrepreneur selling your startup, an investor buying equity, or a business owner transferring ownership, knowing what this agreement means can help you avoid expensive mistakes and legal problems in the future.
📋 Table of Contents
- What is a Share Purchase Agreement?
- Essential Components of SPA
- Step-by-Step Process
- Common Pitfalls to Avoid
- How GetLawyer.me Can Help
- Frequently Asked Questions
What does a Share Purchase Agreement say?
A Share Purchase Agreement is a legally binding contract between a buyer and seller that spells out the rules for buying and selling company shares.
Think of it as the set of rules that cover everything about the deal, from the price and payment terms to the warranties and obligations after the sale.
An Asset Purchase Agreement lets you buy certain assets of a company, but an SPA lets you buy the company itself by buying its shares. This means that the buyer takes over the seller's role and gets all the rights and responsibilities that come with those shares.
When it comes to businesses in India, SPAs must follow the Companies Act, 2013, and any rules set by the Securities and Exchange Board of India (SEBI) that apply. The official website of the Ministry of Corporate Affairs has more information.
🔑 Essential Parts Every Share Purchase Agreement Must Have
💵 Price and Payment Terms
The deal makes it clear how much the shares will cost and how the money will be sent. Will it be a one-time payment, a series of payments, or based on how well you do in the future? These details are important because they have an effect on your cash flow and taxes.
📜 Warranties and Representations
This is where the seller makes promises about how the business is doing. They usually promise that the financial statements are correct, that there are no hidden lawsuits, that intellectual property is properly owned, and that all licenses are up to date. These warranties keep you from getting any bad news after the deal is done.
✅ Conditions that must be met
You have to check these boxes before the sale can go through. Getting board and shareholder approval, getting financing, or getting regulatory approvals are all common conditions. Neither party has to finish the deal until these conditions are met.
🛡️ Clauses for Indemnification
What do you do if something goes wrong after the sale? Indemnification clauses spell out who is responsible for what. These clauses say whether you can get your money back if the seller lied about the company's tax status and you get in trouble later.
🔒 Terms for Non-Compete and Privacy
These clauses are very important in industries where there is a lot of competition. They stop the seller from starting a competing business or sharing private company information after the sale.
📝 Share Purchase Agreement Process: A Step-by-Step Guide
Step 1: Do thorough Research
Before anyone signs anything, the buyer needs to do a lot of research on the company. This means looking over contracts, employee agreements, intellectual property, and any other legal problems that might come up.
Smart buyers hire lawyers and financial experts for this step because missing a red flag here could cost them millions later.
The buyer should check the filings with the Registrar of Companies, which you can find on the MCA portal, to make sure they are following Indian corporate laws.
Step 2: Talking about the Terms
After due diligence is done, the two sides talk about the terms of the SPA. It's not just about the price; it also includes warranties, liability limits, escrow arrangements, and many other things. Having a lawyer with you during negotiations makes sure that your interests are safe.
A lot of entrepreneurs don't realize how important this stage is. Don't rush; everything you agree to here will be legally binding.
Step 3: Writing the Agreement
Based on the terms you and your lawyers agree on, they will write the SPA. This document usually has 30 to 50 pages and includes detailed schedules and attachments. It's not fun to read, but every part is important.
Step 4: Getting Approvals
Depending on how your business is set up and how big the deal is, you might need permission from your board of directors, shareholders, or even the government. You might need permission from the Reserve Bank of India or SEBI to make investments in other countries. Visit the RBI or SEBI website to see what the current requirements are.
Step 5: Finishing the Deal
When the deal is done, shares are given to the buyer, payment is made, and the necessary paperwork is sent to the Registrar of Companies. The buyer officially becomes a shareholder, and the seller gets their money, minus any money that is still in escrow.
Step 6: Duties After Closing
The relationship doesn't end when the deal is done. The SPA usually has promises that come after the deal is done, such as help with the transition, not trying to hire employees, and ongoing reporting requirements.
⚠️ Common Pitfalls to Avoid
🔍 Undervaluing Your Business
A lot of business owners take the first offer without knowing how much their business is really worth. Before you start negotiating, get a professional appraisal. This will help you set a fair price.
📋 Poor Due Diligence
People who don't take their time with due diligence often find problems too late. Unpaid debts, lawsuits, or fights over intellectual property can all lower the value of an investment.
📝 Unclear Warranty Language
Warranties must be clear and measurable. In court, "the company is in good standing" doesn't mean anything. "On [DATE], the company has no outstanding tax debts greater than ₹50,000" does.
💰 Not thinking about taxes
When shares are sold, both the buyer and the seller have to pay taxes. The rules for capital gains tax, stamp duty, and GST are different in each state and for each type of transaction. Talk to a tax professional early on to set up your deal in a way that saves you money on taxes.
🏦 Not enough escrow arrangements
Putting some of the purchase price in escrow protects buyers from claims in the future. A lot of sellers don't want to do this, but it's normal and protects both sides.
🤝 How GetLawyer.me will make difference
You can't download and change Purchase Agreements like you can with templates. Every deal has its own set of circumstances, risks, and chances that need legal solutions that are specific to that deal.
We at getLawyer.me know that buying or selling company shares is a big step in your business journey. Our corporate law team has helped many entrepreneurs, investors, and business owners confidently navigate complicated SPAs.
This is how we help our clients:
- Comprehensive Due Diligence: We do a lot of research to find problems before they happen. We look at every part of the target company so that you know exactly what you're buying or selling.
- Custom Agreement Drafting: We write contracts that protect your interests and make sure that transactions go smoothly. Our SPAs plan for possible disagreements and have ways to settle them quickly.
- Expert Negotiation Support: We use our experience to negotiate on your behalf and get you the best deal possible. We make sure that you don't leave money or protection on the table, whether you're a first-time business owner or a seasoned investor.
- Regulatory Compliance: We take care of all the paperwork and rules, so you can focus on your business. We take care of all the paperwork, from MCA filings to SEBI compliance.
- Post-Transaction Support: We offer ongoing support after closing to help with any problems that come up during the transition, disagreements, or questions about your responsibilities under the agreement.
✅ Going Forward with Confidence
Share Purchase Agreements are big promises and a lot of money on the line. There can be millions of rupees and years of legal trouble between a well-written SPA and a bad one.
If you're a business owner restructuring ownership, an entrepreneur planning your exit, or an investor looking at an acquisition, you need professional legal advice.
Don't try to figure these complicated waters out on your own. Investing in good legal advice pays for itself many times over by keeping you out of trouble, protecting your interests, and making sure your deal goes through smoothly.