Share Purchase Agreements

In Australia, a share purchase agreement specifies the formal process and arrangements of one party agreeing to buy shares off another party. This is usually the shares of a private company and generally takes the form of a share transfer.

Learn more Get in touch

Share purchase agreement overview

At its most basic, the share purchase agreement specifies the amount, schedule, and method of payment as well as representations and warranties of the buyer and seller to each other.

While it may sound simple, there are a host of complexities that can and do arise as part of the process.  These can include:

  • These are the key protections for the buyer if the company is not in the condition it has been presented
  • Purchase price adjustments
  • Post-completion restraints on the seller’s activities.

It is these issues that can cause the most problems and why a sound share purchase agreement is so important.

As a guide, we have provided an overview of some key areas to consider. As always, professional and experienced legal advice can help ensure the purchase process moves smoothly and that any potential legal issues or exposure are minimised.

1. Warranties

The issue and subsequent negotiation on warranties often come from items that have been discovered in the buyer’s due diligence process. While sometimes an issue may have been disclosed by the seller (in the disclosure material), many times this is not the case so a carefully worded warranty or warranties in the share purchase agreement is essential for buyer protection.

2. Planning for completion

There is usually a plethora of documents that need to be provided at sale completion, particularly if the sale involves a large group of companies being sold. There are banking and finance documents such as releases of security interests, replacement of guarantees and third-party involvement. These documents, issues and ‘consents’ to change control, can complicate completion day requirements. In these cases, it is strongly recommended you speak to your legal representative well in advance so they can identify and ‘dry run’ the process well ahead of completion to identify possible issues and adjust the agreement or process as needed.

3. Engaging an accountant

As this is ultimately a numbers game, the advice of a recommended accountant is highly valuable. They can add great value to the share purchase agreement and provide the buyer assurance they are receiving a fixed level of working capital or a fixed value of assets of the business at completion. It also helps the seller knows how much cash they can take out of the business before completion through avenues such as dividend payments.

4. Restraint

As with a share sale agreement, a restraint clause is also recommended in a share purchase agreement. The starting point for this needs to be a consideration of what is really needed to protect the goodwill the buyer is paying for as part of the purchase price. Restraint clauses can be complex and as such, require legal input to ensure they cover all areas fairly and equitably for both parties.

5. Tax implications

Tax always come into play as part of a share purchase process. While a tax adviser may provide certain advice, it’s important you also have a clear understanding of the tax-related drafting in the agreement itself. For this, a legal opinion is highly recommended. The more aware you are of potential tax issues throughout the process, the better protected you are against unknown and unforeseen tax implications.

These are but a few considerations in the drafting and implementation of a share purchase agreement. As it is an agreement that crosses multiple professional industries – from legal and accounting to the tax office – it is imperative that if you are not sure about any area, talk to a professional legal representative as they will understand the drafting and legal nuances of the agreement.

Get in touch

Fill in the form below and one of our team will be in touch. You can also phone 1300 149 140 during standard business hours.

  • This field is for validation purposes and should be left unchanged.

Related Legal Insights

Unfair Contract Law Changes: What You Need to Know

Under the Treasury Laws Amendment, new changes to unfair contracts are being implemented from 9 November 2023....

Read more
Is it an agreement? What you need to know about contract law

In determining whether a contract is enforceable, several factors can be considered including the intention of those entering into the agreement, the terms of the contract and the legal capacity of the parties involved....

Read more
Beware of Penalty Clauses! But Are They Even Enforceable?

When reviewing and entering into a contract, you must aware of any penalty clauses included and assess whether they can even be enforced against you....

Read more
The Chat Ts&Cs of ChatGPT

We assume that you’ve seen more ChatGPT articles than you’d care to read so we won’t go into detail about what it does. Instead we will go straight into the nuts and bolts of the terms under which it is used. What are the Ts & Cs of ChatGPT? The...

Read more
Heads of Agreement – key terms and considerations

Understanding Heads of Agreement A “Heads of Agreement” is one of those legal terms that you may come across for the first time and find yourself doing a quick Google search. To make things more confusing, the term is sometimes used interchangeably with terms such as “Letters of Intent” or...

Read more
How Company’s can Execute Documents: the sign you’ve been looking for…

If you’re a company Director, then you are likely to be signing documents on behalf of a company. The law sets out how this can be done validly so that both the company and the other party are bound by what is signed.   Company signing There are 2 main...

Read more
What happens when a contract is breached?

Contracts are the most common tool used throughout our lives to create legal relationships between parties. Most importantly, in creating a contract parties are able to define what actions people will be able to take when a contract is breached..  If you have entered a contract with another party, you...

Read more
Growing your business – understanding equipment leases

If you are starting or expanding a business, you would be aware that equipment can represent a large cost. Although in an ideal world, you would be able to meet that cost outright, the reality is that you may not have the capital to meet the costs of all the...

Read more
Exclusion clauses in commercial contracts – how far can they go?

It is common in commercial contracts to apportion risk among the parties. One way this is achieved is through exclusion clauses. Exclusion clauses might address liability for contractual breaches as well as other types of liability, such as negligence. There are three main types of exclusion clauses: those that exclude...

Read more
Your business and the Australian Consumer Law – an overview

The Australian Consumer Law, or ACL, is a national law that applies to all businesses throughout Australian jurisdictions. The national law provides consistency to consumers across Australia, so that all consumers have the same rights and all businesses owe the same obligations. Where is the ACL found? The ACL is...

Read more
Managing commercial disputes – key steps and processes

A commercial dispute occurs when two or more parties have a disagreement in relation to a business matter. The subject of a commercial dispute varies however many arise due to a party’s alleged failure to perform contractual terms and conditions, which is why it is important to always seek legal...

Read more
When will a term be implied in a contract?

Legal and business relationships should be governed by a written contract that sets out the terms and conditions agreed between the parties and their respective rights and responsibilities. Sometimes, certain terms will be implied in an agreement even though they have not been written into the contract. Generally, a term...

Read more