The meaning of a share purchase agreement is simple to state and easy to underestimate. It is the contract under which one party buys the shares of a company from another, and with them the company itself. Everything the company owns and everything it owes comes across in the same transaction, whether or not it was mentioned in the negotiations.
That is why the share purchase agreement, usually shortened to SPA, is the central document in many private company sales in Australia. It records what is being bought, for how much, on what conditions, and who carries the risk if the business turns out to be different from the one described. This guide explains what a share purchase agreement is, how it differs from an asset purchase, what a well-drafted one covers, and the tax and regulatory points that decide how a deal should be structured before anything is signed.
What is a share purchase agreement?
A share purchase agreement is a binding contract for the sale and purchase of shares in a company, most commonly a private (Pty Ltd) company. It identifies the buyer and the seller, the number and class of shares changing hands, the price and how it will be paid, and the conditions that must be satisfied before the sale completes.
Because the shares are the company, the buyer steps into ownership of everything behind them: the contracts, the employees, the licences, the intellectual property, the bank accounts, and the liabilities, known and unknown. The agreement’s real job is to allocate that risk. It does so mainly through warranties (statements of fact the seller stands behind), indemnities (promises to make good specific losses), and the disclosure process that qualifies them.
Is a share purchase agreement legally binding? Yes, once signed it is enforceable like any other contract, which is exactly why the detail matters before signing rather than after. If you are weighing up a purchase or a sale, our deals and capital investment team can review the structure before you commit. Talk to us early.
Share purchase or asset purchase: which structure fits
The first structural decision in any business acquisition is whether to buy the shares or the assets, and the share purchase agreement meaning only makes sense against that choice.
- In a share purchase, the buyer acquires the company itself. Contracts, licences and employees generally stay in place because the employer and counterparty has not changed, only its owner. The trade-off is that liabilities come too, including ones nobody has found yet.
- In an asset purchase, the buyer picks the assets it wants: the plant, the brand, the customer contracts, and leaves the company shell and its history with the seller. That control comes at the cost of complexity, since each asset and contract may need its own transfer or a third party’s consent.
- Sellers usually prefer a share sale because it is a clean exit and can attract capital gains tax concessions. Buyers often start by preferring assets. Where the deal lands is a matter of negotiation, price and risk appetite.
Neither structure is better in the abstract. The right answer depends on what the liabilities look like, how hard the contracts are to move, and what the tax position is on each side.
What a share purchase agreement covers
Many Australian share purchase agreements are built from the same clause families. The drafting varies with the deal; the architecture tends to be similar.
Parties, shares and price
Who is selling, who is buying, exactly which shares are changing hands, and the price. Payment may be a single completion payment, instalments, or a completion payment plus an earn-out tied to future performance. Completion accounts or a locked box mechanism deal with the gap between signing and completion.
Conditions precedent
The things that must happen before either side is obliged to complete: regulatory approvals, landlord or financier consents, key contracts staying in place, sometimes key staff signing new terms. If a condition fails, the deal can be walked away from.
Warranties and indemnities
Warranties are the seller’s statements about the company: the accounts are accurate, tax has been paid, there is no litigation brewing, the company owns its assets. If a warranty proves false and the buyer suffers loss, the buyer can claim. Indemnities go further, promising dollar-for-dollar cover for specific identified risks, and are negotiated hard on both sides.
The disclosure letter
The seller’s qualification of the warranties. Anything fairly disclosed against a warranty generally cannot later found a claim, which is why the disclosure letter deserves as much attention as the agreement itself, on both sides of the table.
Completion mechanics
What actually happens on the day: payment, signed transfer forms, resignations and appointments of directors, delivery of the company’s registers and records, and the updates that follow completion, including notifying ASIC of the changes.
Restraints and post-completion obligations
A buyer paying for goodwill usually requires the seller to stay out of the same market for a defined period and area, and to keep the company’s information confidential. Transitional help from the seller is often documented here too.
Due diligence before you sign
The agreement allocates risk; due diligence finds it. On a share purchase the investigation is wider than on an asset deal precisely because everything transfers. Four checks earn their keep on almost every deal:
- The constitution and any shareholders agreement. Both can contain pre-emptive rights or transfer restrictions that shape whether and how the sale can proceed at all.
- Change of control clauses. Key customer and supplier contracts, and almost every commercial lease, may let the counterparty terminate or renegotiate when the company’s ownership changes. Finding these late is one of the most common causes of a stalled deal.
- Employee entitlements. Employees stay with the company, and so do their accrued leave and long service entitlements. The price should reflect them.
- Intellectual property and systems. The company should actually own or properly licence its brand, domains, software and data. Founders who registered assets personally are a recurring surprise.
Where a lease sits inside the target company, our commercial lease lawyers review assignment and change of control positions as part of the same due diligence exercise.
Tax, duty and regulatory approvals
Three regimes decide how, and sometimes whether, a share purchase proceeds. None of them should be discovered after signing.
Capital gains tax sits with the seller: selling shares is a CGT event, and for eligible small business owners the CGT small business concessions can materially reduce the tax on exit, which is one reason sellers prefer share deals. Duty is narrower than most people expect: transfer duty no longer applies to most private share transfers in Australia, but where the company holds land, landholder duty can apply above state thresholds, and it needs to be checked in every state where the company holds property.
The newest regime is merger control. From 1 January 2026, acquisitions above the ACCC’s notification thresholds must be notified to and cleared by the ACCC before completion, broadly where the parties’ combined Australian turnover is at least $200 million and the target’s turnover is at least $50 million, or the deal value is at least $250 million with additional thresholds relevant to an acquirer’s recent acquisition activity.
Completing a notifiable acquisition without clearance carries serious penalties, so the question belongs in the deal timetable from day one. Foreign buyers may separately need FIRB approval.
Our M&A lawyers advise on structuring and regulatory approvals across the full deal cycle. Get in touch before the term sheet is agreed.
How a share purchase runs, from term sheet to completion
- Heads of agreement or term sheet. The commercial deal in outline: price, structure, exclusivity, timetable. Usually not binding except for confidentiality and exclusivity.
- Due diligence. The buyer’s investigation of the company, running in parallel with drafting.
- Drafting and negotiation. The share purchase agreement, the disclosure letter, and any ancillary documents: restraints, transitional services, new employment terms for key people.
- Exchange. Both sides sign. If conditions precedent apply, the period between exchange and completion is spent satisfying them.
- Completion. Payment against transfer forms and company records, board changes, and post-completion filings, including ASIC notifications and the share register update that actually makes the buyer a shareholder.
On a clean small deal that sequence can run in a few weeks. Where regulatory approvals, financing or a large disclosure exercise are involved, months is normal, and the timetable in the agreement should be honest about it.
Common mistakes in share purchase agreements
- Using a generic template for a specific company. Templates do not know about the company’s actual contracts, its lease, its ATO position or its shareholders agreement, and the warranties in them can be either toothless or unsignable.
- Skipping the constitution. Pre-emptive rights discovered after a price is agreed can hand the deal, or the leverage, to someone else.
- Treating the disclosure letter as an afterthought. For a seller it is the main shield against warranty claims; for a buyer it is a map of where the problems are.
- Vague completion mechanics. If the agreement does not say exactly who delivers what on the day, completion becomes a negotiation of its own.
- Ignoring the new merger regime. A deal that is notifiable but not notified cannot lawfully complete, whatever the contract says.
Getting the structure right early
Growth by acquisition is how many strong businesses get to the next stage, and the share purchase agreement is where that growth is either protected or exposed. The decisions that matter most, share or asset, price mechanism, warranty package, regulatory pathway, are all made early, which is when a business acquisition lawyer adds the most value.
RedeMont acts for buyers and sellers in share and asset deals of all sizes, from owner-managed businesses to complex corporate acquisitions, working alongside your accountant so the legal and tax positions pull in the same direction. If a purchase or a sale is on your horizon, speak with our deals and capital investment lawyers before the heads of agreement is signed. Contact us today.
Frequently asked questions
What is the difference between a share purchase agreement and an asset purchase agreement?
The difference between a share purchase agreement and an asset purchase agreement is what the buyer acquires. Under a share purchase agreement the buyer takes the company itself, with every asset and liability inside it, while under an asset purchase agreement the buyer selects specific assets and leaves the company and its remaining liabilities with the seller. Sellers generally prefer share sales for the clean exit and tax treatment; buyers often prefer assets for the control over liabilities.
Is a share purchase agreement legally binding?
Yes, a share purchase agreement is legally binding once signed by the parties, like any properly formed contract. That includes the warranties, indemnities, restraints and completion obligations inside it, which is why the negotiation and due diligence happen before exchange. Preliminary documents such as a term sheet are usually expressed to be non-binding, apart from confidentiality and exclusivity, so the SPA is the point of real commitment.
What happens to employees when the shares in a company are sold?
When the shares in a company are sold, the employees stay employed by the same company and their employment simply continues under new ownership. Their accrued entitlements, such as annual leave and long service leave, remain with the company, which is why a buyer should price them into the deal and a seller should disclose them fully. This is different from an asset sale, where employees must be offered new employment by the buyer, although there are some exceptions and specific rules around recognition of prior service and employee entitlements.
Is stamp duty payable when buying shares in a company?
Stamp duty is generally not payable on a transfer of shares in a private Australian company, as share transfer duty has been abolished across the states and territories. The main exception is landholder duty: where the company holds land above a state’s threshold, the share acquisition can attract duty broadly as if the land itself were transferred. Any target that holds property should be checked against the landholder rules in each relevant state before signing.
What is a disclosure letter in a share sale?
A disclosure letter in a share sale is the seller’s formal list of exceptions to the warranties in the share purchase agreement. Anything fairly disclosed in it generally cannot later be the basis of a warranty claim, so it protects the seller, while giving the buyer a candid picture of the company’s known issues before completion. Both sides should treat it with the same care as the agreement itself.
How long does a share purchase take to complete?
A share purchase typically takes between six weeks and six months from term sheet to completion, depending on the deal. A small, clean transaction with no approvals can move in weeks, while deals involving financing, a substantial due diligence exercise, landlord or counterparty consents, or ACCC or FIRB approval run longer. The timetable is set in the agreement, so it should reflect the actual conditions rather than optimism.
