Overview
A share purchase agreement effects the most consequential commercial transaction most businesses will ever undertake. The buyer acquires not just shares but the entire enterprise - its assets, liabilities, contracts, employees, and obligations, known and unknown. The seller transfers years or decades of value creation. The share purchase agreement must allocate the enormous risks inherent in this transaction between parties with fundamentally opposed interests.
The architecture of a share purchase agreement reflects these competing interests. Representations and warranties allow the buyer to verify assumptions about the target. Indemnities shift risk for specific identified issues. Conditions precedent ensure that the transaction only completes if key requirements are met. Covenants govern conduct between signing and closing. Each element must be negotiated against the backdrop of deal dynamics - leverage, competition for the asset, and the parties' respective alternatives.
Indian M&A practice has developed its own conventions while absorbing international standards. Competition Commission review, FEMA compliance for cross-border deals, sector-specific regulatory approvals, and stamp duty considerations all affect transaction structuring. The SPA must integrate these India-specific requirements with commercial terms negotiated between sophisticated parties.
Key Considerations
Representations and Warranties
The statements about the target that the seller makes, forming the basis for buyer's price and recourse.
Indemnification
Specific risk allocation for identified issues, with baskets, caps, and survival periods.
Conditions Precedent
Requirements that must be satisfied before the transaction can close, including regulatory approvals.
Covenants
Obligations governing conduct between signing and closing, and sometimes post-closing.
Price Mechanism
How the purchase price is determined, adjusted, and paid - locked box versus completion accounts.
Closing Mechanics
The procedural requirements for completing the transaction and transferring ownership.
Applying the TCL Framework
Technical
- Understanding the target's business and technology
- Assessing due diligence findings and their materiality
- Evaluating integration requirements and challenges
- Reviewing technology agreements and IP positions
- Understanding operational requirements for transition
Commercial
- Negotiating valuation and price mechanisms
- Structuring earnouts and deferred consideration
- Allocating risk through baskets, caps, and escrows
- Managing deal certainty against protection
- Addressing key commercial points from due diligence
Legal
- Drafting comprehensive representations appropriate to the deal
- Structuring indemnities that are enforceable
- Navigating regulatory approval requirements
- Addressing employment and transition issues
- Creating workable dispute resolution for post-closing claims
"A share purchase agreement is a carefully negotiated allocation of known and unknown risks. The buyer seeks protection through representations and indemnities. The seller seeks finality through caps and survival limits. The art is finding the balance that gets the deal done while protecting both parties' legitimate interests."
Common Pitfalls
Disclosure Gaps
Incomplete disclosure schedules that leave buyers exposed or sellers facing warranty claims.
Materiality Scrapes
Indemnity mechanisms that fail to address how materiality qualifiers affect claims.
Condition Failure
Conditions precedent that cannot be satisfied, preventing closing of otherwise viable transactions.
Earnout Disputes
Earnout provisions with ambiguous metrics and manipulation opportunities that guarantee post-closing conflict.
Integration Neglect
Insufficient attention to transitional arrangements that creates operational problems post-closing.
M&A Regulatory Framework
Share acquisitions in India navigate multiple regulatory frameworks. CCI approval is required for combinations meeting thresholds. SEBI regulations govern acquisitions of listed companies including tender offer requirements. FEMA compliance is essential for foreign acquirers. Sector-specific approvals may be required in regulated industries. Stamp duty varies by state and affects transaction structuring. Tax considerations including capital gains and GAAR affect deal economics. The SPA must build in conditions and covenants addressing these requirements.
Practical Guidance
- Invest in thorough due diligence - the SPA cannot protect against what you do not know.
- Tailor representations to actual due diligence findings and deal-specific risks.
- Create disclosure schedules that are complete and organised for future reference.
- Structure indemnities with practical enforcement mechanisms including escrow.
- Map all regulatory approvals required and build realistic timelines.
- Plan for integration and transition from the term sheet stage.
Frequently Asked Questions
Related Practice Areas
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