The Key Clauses in a Share Purchase Agreement, Explained

What are the key clauses in a share purchase agreement? A share purchase agreement (SPA) is the contract under which a buyer acquires shares in a company from its existing shareholders. Its key clauses are the sale of shares, the purchase price and any adjustments, conditions precedent, completion, seller warranties, disclosure, indemnities, limitations on claims, restrictive covenants, tax covenants, confidentiality, and governing law. Because the buyer takes the company with everything in it, the SPA is about far more than price: it sets out what is promised about the company and what the buyer can recover if those promises are wrong. Below, each clause is explained in plain English. This is an explanation of common clauses, not legal advice for your specific deal. A share sale has tax, securities and company-law consequences that differ by country, so have a qualified lawyer and tax adviser review your agreement. ## Sale and purchase of shares The sale clause identifies exactly what is being bought: the number and class of shares, the percentage of the company's capital they represent, and a statement that they are sold free of any charge or third-party right, with all rights attached. This is the operative promise of the whole deal, so precision here matters more than anywhere else. ## Purchase price and adjustments The price clause states the headline figure and how it is paid: all at completion, in instalments, or partly deferred. Many deals adjust the price after completion. A completion-accounts mechanism recalculates the price once the company's balance sheet at completion is known, while a locked-box fixes the price by reference to an earlier set of accounts. An earn-out ties part of the price to the company's future performance. Each approach shifts risk between buyer and seller, so read this clause carefully. ## Conditions precedent The conditions clause lists what must happen before the deal can complete: regulatory approvals, shareholder or board consents, and third-party consents on key contracts. It sets a long-stop date, after which either party can walk away if the conditions are not met. Between signing and completion, the parties are committed but the deal is not yet done. ## Completion The completion clause is the mechanics of closing: the date, the place, and exactly what each side hands over. The seller typically delivers signed share transfer forms, share certificates, director resignations and company records; the buyer pays the price. A clear completion list prevents a closing that is only half done. ## Seller warranties The warranties clause is the heart of the buyer's protection in a private deal. Warranties are statements of fact the seller makes about the company, covering title to the shares, the accuracy of the accounts, tax, material contracts, assets, litigation, employees, intellectual property and regulatory compliance. If a warranty is untrue and the buyer suffers loss, it may bring a claim. Buyers push for broad warranties; sellers push to narrow them. ## Disclosure The disclosure clause qualifies the warranties. The seller provides a disclosure letter that reveals known exceptions, for example a pending dispute or an overdue filing. Anything fairly disclosed cannot later be the basis of a warranty claim, because the buyer knew about it. The warranties and the disclosure letter must always be read together; one without the other tells you only half the story. ## Indemnities The indemnity clause is a promise by the seller to reimburse the buyer, often on a pound-for-pound or rupee-for-rupee basis, for a specific identified risk such as a known tax assessment or a pending lawsuit. Unlike a warranty claim, an indemnity does not require the buyer to prove a fall in the company's value, so it is used for risks the buyer refuses to take on. Keep indemnities targeted to identified issues. ## Limitations on claims The limitations clause caps the seller's exposure. It usually sets a de minimis (individual claims below a floor are ignored), a threshold (claims must reach a total before any can be made), an overall cap on liability, and time limits for notifying claims, with tax claims normally given a longer window. These limits are among the most negotiated terms in the agreement, because they decide how much of the risk really transfers. ## Tax covenant and restrictive covenants The tax covenant (or tax deed) shifts pre-completion tax liabilities of the company back to the seller, so the buyer does not pay for tax that relates to the period before it owned the company. The restrictive covenants stop the seller competing with the business or soliciting its customers and staff for a period after completion. Keep any restraint reasonable in length and territory, because an excessive one is often unenforceable and this varies by jurisdiction. ## Confidentiality, announcements and governing law The confidentiality clause keeps the terms private and controls public announcements. The governing law clause names the law that applies and the forum for disputes, whether a named court or arbitration. For cross-border deals this choice has real practical weight, because enforcing a judgment or award differs from country to country. ## A note on jurisdiction and tax A share sale triggers tax such as capital gains, and in India stamp duty on the share transfer and filings with the company and registrar. Securities law and foreign-investment rules can restrict transfers, especially where a non-resident buys into an Indian company. The warranty practice, tax treatment and completion formalities differ across India, the UK, Ireland, Singapore, Australia and the US. This is general information, not legal or tax advice. ## Where a contract workspace helps Understanding these clauses lets you read or negotiate a share purchase agreement with confidence. The hard part is what comes after: warranties have to be cross-checked against the disclosure letter and the due-diligence findings, conditions and the long-stop date tracked, and claim-notification windows watched for months or years past completion. Across a deal that size, drafting, reviewing, tracking and governing the SPA and its schedules in one AI workspace tuned to your company keeps the moving parts connected. A tool like Adira is built on this idea, so the warranties, disclosure and completion dates stay linked rather than scattered across files. The explainer above is enough to read an SPA well; a workspace keeps its web of warranties, schedules and deadlines from drifting apart.