The Definition of a Share Purchase Agreement

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A share purchase agreement is a legal contract between a buyer and a seller -- sometimes stated in the contract as a “purchaser” and “vendor” -- in which the seller sells a stated number of shares at a stated price. The agreement is proof that the sale and its terms were mutually agreed upon.

Contract

  • A share purchase agreement is a business contract. A contract lawyer draws up the agreement, and both buyer and seller sign and date the agreement in the presence of two witnesses. By signing the share purchase agreement, both parties acknowledge that the sale will take place in such a way at such a price and under stated conditions.

Purpose

  • The purpose of a share purchase agreement is to ensure that the deal occurs as both parties expect it to. If either party attempts to change the price or number of shares or impose new or unexpected conditions, the other party can produce the contract, which both parties are legally required to abide by after signing.

Legalese

  • The National Venture Capital Association states that the main items in a share purchase agreement are the names of the buyer and seller as well as the price and number of shares. Pages of legalese often accompany these items, specifying how the price is determined, how the shares will be paid for and delivered, the transfer of ownership and explicitly removing buyer and seller from any other responsibility toward each other.

Use

  • Share purchase agreements can be used in any instance in which one person or entity sells shares to another. The agreements are most commonly used when the shares in question are being transferred to entities in two different countries under two different legal systems or when the shares are being sold outside of a standard trading platform or off an exchange.

References

  • Photo Credit DragonImages/iStock/Getty Images
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