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- Shareholders' Agreements
- Share Purchase Agreements
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Share Purchase Agreements
A share purchase agreement (SPA) is the contract under which an existing shareholder sells shares in a company to a buyer. It fixes the price, the conditions to be met before completion, the promises the seller makes about the company and what the buyer can recover if those promises turn out to be untrue.
An SPA deals with shares that already exist, so the money goes to the seller. A share subscription agreement deals with new shares, and the money goes to the company. The transfer itself is completed under the Companies Act, 2013, with stamp duty under the Indian Stamp Act, 1899.
When you need it
When buying or selling a company
The purchase of all, or a controlling stake, of a company’s shares is documented in an SPA.
When a founder or early investor exits
A partial sale to an incoming investor, or to the other shareholders, needs the same care as a full sale.
When buying out a partner
One shareholder acquiring another’s stake should record the price, the release of claims and any restrictions on the seller.
When a group is reorganised
Moving a subsidiary within a group is still a transfer of shares, with tax and stamp duty consequences.
When the buyer or seller is outside India
A transfer between a resident and a non-resident has to follow the pricing and reporting rules under the foreign exchange law.
How the process works
Six stages, from the term sheet to completion. Timings are typical, not promised.
- 1
Structure and term sheet
Depends on the partiesConfirm what is being sold, the price and how it is paid, and whether a share sale is the right structure compared with a sale of the business or its assets.
Documents
- The term sheet or offer letter
- The company’s shareholding and articles of association
- 2
Due diligence
Commonly two to six weeksThe buyer reviews the company’s corporate records, contracts, employees, intellectual property, licences, litigation and tax position. The findings shape the price, the conditions and the indemnities.
- 3
Draft the agreement
Two to three weeksSet out the sale, the price and any adjustment, the conditions precedent, the seller’s warranties, the indemnities and their limits, restrictions on the seller after the sale, and the steps at completion.
- 4
Disclosure and negotiation
Depends on the partiesThe seller discloses known exceptions to the warranties in a disclosure letter. The parties negotiate the scope of the warranties, the caps and time limits on claims, and any amount held back or placed in escrow.
- 5
Satisfy the conditions
Depends on the conditionsObtain the consents and approvals needed before completion, such as waivers from other shareholders, lender or customer consents and any regulatory approval.
- 6
Completion
On the completion datePay the price, transfer the shares, pay the stamp duty, pass the board resolutions, change the directors where agreed, update the register of members and file any report required for a foreign party.
Common questions
In a purchase the buyer acquires existing shares from a shareholder, who receives the price. In a subscription the company issues new shares and receives the money. A transaction can involve both.
Shares held in physical form are transferred by a share transfer form, Form SH-4, signed by both parties and lodged with the share certificate. Shares held in dematerialised form move through the depository. The board then registers the transfer.
Since 1 July 2020, the Indian Stamp Act applies a uniform rate across India: 0.015 per cent of the consideration on a transfer of shares on a delivery basis. The agreement itself is stamped separately under state law.
Statements by the seller about the company: that it owns its assets, its accounts are accurate, its taxes are paid and it faces no undisclosed claims. If a statement is untrue, the buyer can claim under the agreement.
By a cap on the total amount, a minimum size for claims, a time limit for bringing them and an exclusion for matters fairly disclosed. Title to the shares and tax are usually given longer periods and higher caps.
Yes, within limits. Section 27 of the Indian Contract Act makes restraints of trade void, with an exception for a person who sells the goodwill of a business, who may agree not to carry on a similar business within reasonable local limits.
The price must meet the pricing rules in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and the transfer is reported in Form FC-TRS within sixty days. Tax may have to be withheld from the price paid to a non-resident seller.
Related
To discuss a share purchase, write to info@ireniclegal.com or call +91 96547 47331. Written by Adv. Kanika Marwaha Bindal; last updated 7 October 2026.