When it comes to buying or selling a business, one of the most important agreements involved in the transaction is the Share Purchase Agreement (SPA) or the Sale and Purchase Agreement (SPA). Although both agreements are similar, there are some key differences that business owners and investors should be aware of.
The Share Purchase Agreement (SPA) is a legal document that outlines the terms and conditions of the sale of shares in a company. It is used when the buyer wants to purchase the entire company or a controlling interest in the company. The SPA includes provisions such as the purchase price, payment terms, warranties and representations, and conditions for closing the transaction.
On the other hand, the Sale and Purchase Agreement (SPA) is used when the buyer wants to purchase the assets of a company rather than the shares. This is common in cases where the buyer is not interested in taking on the liabilities of the seller, such as debts, lawsuits, or outstanding contracts. The SPA includes provisions such as the transfer of ownership of the assets, the purchase price, payment terms, warranties and representations, and conditions for closing the transaction.
While the two agreements are similar in many respects, there are some key differences that business owners and investors should be aware of. For example, in an SPA, the buyer is purchasing ownership of the company, including all assets and liabilities. In contrast, in an SPA, the buyer is only purchasing the assets of the company, and the seller retains ownership of the remaining assets and liabilities.
Another key difference is that in an SPA, the buyer is required to perform due diligence on the company prior to closing the transaction. This includes reviewing the company`s financial statements, contracts, and other documentation to ensure that there are no hidden liabilities or other issues that could affect the value of the company. In an SPA, due diligence is often less extensive, as the buyer is only interested in purchasing specific assets rather than the company as a whole.
Business owners and investors should also be aware of the tax implications of each agreement. In an SPA, the seller is typically subject to capital gains tax on the sale of their shares, while in an SPA, the seller is typically subject to income tax on the sale of their assets.
In conclusion, whether you are buying or selling a business, it is important to understand the differences between the Share Purchase Agreement (SPA) and the Sale and Purchase Agreement (SPA). Both agreements have unique implications and requirements, and it is essential to work with an experienced attorney or financial professional to ensure that you are making the best decision for your company and your financial future.