Share Purchase Agreement (SPA) Drafting
A share purchase agreement sets the price, the promises and the protections when you buy or sell shares in a private company. We draft the SPA for your review, then handle the stamped transfer at 0.015% of the consideration and the company-side paperwork.
What it is
A share purchase agreement (SPA) is the contract under which a seller agrees to sell existing shares of a company to a buyer. It fixes the shares, the price and the seller’s promises about the company, and says what happens if a promise proves false.
The SPA is a contract under the Indian Contract Act, 1872. Here is the catch: signing it does not move a single share. The transfer still runs through Section 56 of the Companies Act, 2013: a stamped instrument of transfer (Form SH-4 for physical shares) delivered to the company within 60 days of execution. A share subscription agreement is different: there the company issues new shares and keeps the money.
Who it applies to
You are buying a business through its shares
You want control of a running company with its licences and contracts intact. Only the owners change.
A co-founder is selling out
Say one of three founders of a Ballabgarh engineering unit retires and the other two buy out that stake. If your company has a shareholders’ agreement, the SPA must respect its right of first refusal and tag-along terms.
An investor is buying from existing holders
In a secondary sale, an investor buys from founders or earlier investors. Where either side is a non-resident, FEMA pricing rules and Form FC-TRS also apply.
Why it matters
Get the seller’s promises in writing
Warranties on tax, debts, title and pending cases. If one is false, the buyer has a claim.
Pay only when the agreed steps are done
Conditions precedent hold the money back until approvals and consents are in.
Decide now who pays for surprises
An indemnity, backed by an escrow or holdback, makes the seller cover specific losses that surface after closing.
Documents required
From the company
- Certificate of incorporation, MoA and AoA
- Register of members and share certificates
- Last three years’ accounts and ROC filings
- Loans, charges and pending cases
From the seller
- PAN and address proof
- Original share certificates or demat holding statement
- Residential status: resident, NRI or foreign entity
- Any earlier SHA, pledge or side letter
From the buyer
- PAN, address proof and occupation
- Term sheet or agreed commercial points
- Valuation report, where tax or FEMA rules need one
- Demat account details
Key clauses at a glance
| Clause | What it does | What to watch |
|---|---|---|
| Sale and price | Shares, price and payment, in one go or in tranches | Adjustments for debt or working capital at closing |
| Representations and warranties | Seller’s statements on title, accounts, tax, debts, litigation and compliance | Disclosure letter lists the known exceptions |
| Conditions precedent (CPs) | Steps that must be done before closing, such as board approval or lender consent | A long-stop date if CPs are not met |
| Indemnity | Seller makes good specified losses, as a contract of indemnity under Section 124 of the Contract Act | Caps, time limits and a minimum claim amount |
| Escrow or holdback | Part of the price is held back to meet claims | Release dates and how disputes are settled |
| Non-compete by the seller | Seller agrees not to run a similar business | Valid only within Exception 1 to Section 27, with goodwill sold and reasonable local limits |
How it works
Check the company before you price it
We read the company’s ROC records, accounts and tax filings, and list the risks the warranties and indemnity must cover.
Draft the SPA for your review
We draft the agreement and disclosure letter for your review and revise them after both sides comment. Each party is free to take independent advice, and any legal notice or court filing under the SPA must be signed by a practising advocate.
Clear every condition precedent
We prepare the board resolutions, ROFR waivers and lender consents, and track each CP to the long-stop date.
Stamp and execute the transfer
The SPA is stamped under your state’s law before signing. For physical shares, Form SH-4 is stamped at 0.015% of the consideration; for demat shares, the depository collects the duty on the transfer instruction.
Record the new owner
In practice, the board approves the transfer and the register of members is updated. The change then goes into the next annual return as part of your annual ROC compliance.
Timelines
Stamp the SPA at signing
Section 17 of the Indian Stamp Act, 1899 requires every instrument chargeable with duty to be stamped before or at the time of execution.
Deliver SH-4 within 60 days
Section 56(1) and Rule 11 of the Share Capital Rules require the stamped SH-4 and certificate to reach the company within 60 days of execution. The company issues the certificate within one month under Section 56(4)(c).
File FC-TRS within 60 days
Where a resident and a non-resident trade shares, Form FC-TRS goes on the RBI FIRMS portal within 60 days of the transfer or receipt of funds, whichever is earlier.
What happens if the SPA is weak
An unstamped SPA can’t be used as evidence
Section 35 of the Stamp Act bars an unstamped instrument from evidence. Curing it costs the missing duty plus a penalty of ten times the shortfall.
An inflated penalty gets cut down
Section 74 of the Contract Act limits recovery to reasonable compensation, capped at the amount named.
The company can refuse the transfer
Section 2(68) requires a private company’s articles to restrict transfers. A sale that skips the ROFR in the articles can be refused under Section 58, with an appeal to the NCLT within 30 days of the refusal notice.
Picture a Faridabad buyer who takes over a packaging company. Months after closing, a GST demand for an older year arrives. With a specific indemnity and a holdback, the claim is paid from the holdback. Without them, the buyer must prove a warranty breach and then chase the seller for the money.
Tax needs the same care. Under Section 79 of the Income-tax Act, 2025, the seller of unquoted shares is taxed on the fair market value worked out under Rule 57 of the Income-tax Rules, 2026 where the price is lower. A buyer paying less than fair value by more than ₹50,000 can be taxed on the difference under Section 92(2)(m).
Frequently asked questions
What is the stamp duty on a share transfer under an SPA?
The transfer of shares attracts stamp duty of 0.015% of the consideration, or ₹1,500 per crore, uniform across India since 1 July 2020. For physical shares it is paid on Form SH-4; for an off-market demat transfer the depository collects it on the delivery instruction. The SPA itself is stamped separately under the stamp law of the state where it is signed. We work out both figures before signing day.
What is the difference between a representation and a warranty?
A representation is a statement of fact that persuades the buyer to sign; a warranty is a contractual promise that the statement is true. Indian SPAs list them together and give the buyer a claim for damages under Section 73 of the Contract Act if any turns out false. The disclosure letter carves out what the seller has already revealed. Clear disclosure protects the seller too.
Why do we need an indemnity if there are already warranties?
An indemnity is a direct promise to make good a specific loss, while a warranty claim needs proof of breach and loss. Section 124 of the Contract Act defines a contract of indemnity as a promise to save the other party from loss. Buyers use it for known risks, such as a pending tax demand or a GST notice. Caps, time limits and an escrow keep the indemnity fair to both sides.
What are conditions precedent in an SPA?
Conditions precedent are steps that must be completed before the buyer pays and the shares move. Common CPs are board approval, a waiver of the right of first refusal under the articles, lender consent, a valuation report and clearing of charges on the MCA V3 portal. The SPA sets a long-stop date: if the CPs are not met by then, either side can walk away. A tracked CP list keeps closing on time.
Can the SPA stop the seller from competing with the business?
Yes, within limits. Section 27 of the Contract Act voids agreements in restraint of trade, but Exception 1 allows a seller of goodwill to agree not to carry on a similar business within specified local limits, if the limits are reasonable. So the non-compete should be tied to the goodwill being sold, a defined area and a reasonable period. Drafted that way, it holds up far better.
Do the shares need to be in demat form before the sale?
For many companies, yes. Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 requires private companies other than small companies to dematerialise, and a holder must demat shares before transferring them. Since 1 December 2025, a small company is one with paid-up capital up to ₹10 crore and turnover up to ₹100 crore. We check your status at the start, so the closing date does not slip.
Is a valuation report needed for the share sale?
Usually, yes. For tax, Section 79 of the Income-tax Act, 2025 treats the fair market value under Rule 57 as the sale price if the agreed price is lower. Where a non-resident is involved, Rule 21 of the NDI Rules sets fair value as a floor or ceiling, certified by a CA, SEBI-registered merchant banker or practising cost accountant. One report on file answers both.
What happens if the seller’s warranty proves false after closing?
The buyer claims under the SPA, first from the escrow or holdback, then from the seller up to the agreed cap. Damages follow Section 73 of the Contract Act, and an agreed sum is limited to reasonable compensation under Section 74. If the SPA has an arbitration clause, the claim goes there. A commercial suit without urgent relief first needs pre-institution mediation under Section 12A of the Commercial Courts Act. A clear claims procedure keeps it short.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
The government costs are stamp duty on the SPA at your state’s rate and stamp duty on the transfer at 0.015% of the consideration, or ₹1,500 per crore. Form SH-4 is delivered to the company, not filed on the MCA V3 portal, so it carries no ROC fee. A genuine gift of shares for no consideration attracts nil transfer duty.
Ready to begin?
Send us the term sheet; we will draft an SPA that protects your side of the deal.