Share Purchase vs Share Transfer Agreement: Differences and Similarities

What is a Share Purchase Agreement (SPA)?

A Share Purchase Agreement (SPA) is typically used when an investor is acquiring newly issued shares directly from the company (known as a primary transaction), or buying shares from an existing shareholder (a secondary transaction).

In a primary transaction, the company is an active party. It issues new shares, receives payment, and often increases its total share capital as a result.

In a secondary transaction under an SPA, one or more existing shareholders sell their shares directly to an external buyer. While the company may not be directly involved, it usually needs to approve the transfer and update the register of members. The selling shareholders must also comply with any pre-emptive rights or transfer restrictions.

Regardless of whether it's a primary or secondary transaction, the SPA sets out the terms of the transaction, including the number of shares being purchased, the price per share, the payment schedule, and any conditions the parties must meet before the deal can close (such as completion of due diligence or approval from the board or shareholders).

What is a Share Transfer Agreement (STA)?

In contrast, a Share Transfer Agreement (STA) is used exclusively for transferring existing shares from one shareholder to another.

No new shares are issued, and the company’s total share capital remains unchanged.

This type of agreement is common in internal restructurings and early investor exits. The STA formalizes the transaction and documents the intent of both parties (the transferor and the transferee) to complete the share transfer under mutually agreed terms.

A share transfer agreement spells out the number and type of shares being transferred, the agreed-upon price, the timeline for payment, and confirmations that the shares are free of encumbrances. 

Depending on the company’s governing documents, the transfer may require board approval, shareholder consent, or compliance with transfer restrictions like a right of first refusal (ROFR).

A company may refuse the  share transfer based on the following grounds:

- The AOA may impose restrictions on the transfer or require prior approval from shareholders or the board.

- In private companies, board approval is typically required for share transfers. The board may exercise its discretion to reject a proposed transfer.

- Other existing shareholders may hold pre-emptive rights, such as a Right of First Offer (ROFO) or Right of First Refusal (ROFR). These rights require the selling shareholder to first offer their shares to those existing shareholders before proceeding with a sale.

- Tag-along and drag-along rights are commonly triggered in secondary transactions. Tag-along rights protect minority shareholders by allowing them to participate in a sale initiated by majority shareholders, on the same terms. Drag-along rights allow majority shareholders to compel minority shareholders to sell their shares to a buyer on the same terms, ensuring full transfer of control.

Difference between Share Purchase Agreement (SPA) and Share Transfer Agreement (STA)

There are two primary differences between a Share Purchase Agreement (SPA) and a Share Transfer Agreement (STA):

1. Nature of the transaction

a. A Share Purchase Agreement (SPA) is used when an investor acquires newly issued shares from the company in a primary transaction, which dilutes existing shareholders and increases the total share count on the cap table. In a secondary transaction, an SPA occurs between an existing shareholder and an external buyer.

b. A Share Transfer Agreement (STA) involves only existing shareholders. No new shares are created, but ownership is transferred from one party to another.

‍2. Regulatory and procedural complexity

a. SPAs, especially in institutional rounds, often trigger corporate actions such as:

• Board and shareholder approvals
• Statutory filings
• Securities law compliance
• Cap table updates and possible valuation adjustments

b. STAs are simpler but still require:

• Proper documentation
• Company approval (if mandated)
• Statutory filings
• Updates to the register of members and governance records

Draft Share Purchase Agreement (SPA)

Note: Use this Share Purchase Agreement template. Make a copy and customize it to suit your deal terms and applicable laws.

 -----------Share Purchase Agreement (SPA)-----------

THIS SHARE PURCHASE AGREEMENT ("Agreement") is made and entered into on [Date], by and between:

• Seller/Company: [Full Legal Name], a [jurisdiction] company, with its registered office at [Address] ("Seller"),
  
• Purchaser: [Full Legal Name], residing at [Address] or having its registered office at [Address] ("Purchaser").
  

WHEREAS, the Seller desires to sell and the Purchaser desires to purchase [number] [class] shares (the “Shares”) of [Company Name], a company incorporated under the laws of [jurisdiction], with its registered office at [address] (the “Company”), on the terms and subject to the conditions set out in this Agreement.

1. Purchase and Sale

1.1 The Seller agrees to sell, and the Purchaser agrees to purchase the Shares for a total purchase price of [Amount in currency] (the “Purchase Price”).

2. Payment

2.1 The Purchaser shall pay the Purchase Price to the Seller on or before [Closing Date] via [Payment Method].

3. Closing

3.1 Closing shall take place on [Closing Date] at [Location] or remotely via electronic exchange of documents.

3.2 At Closing:

• The Seller shall deliver duly executed share certificates (if applicable), transfer instruments, and board/shareholder approvals (if required);
  
• The Purchaser shall deliver the Purchase Price.
  

4. Representations and Warranties

Each party represents and warrants that:

• It has the authority and capacity to enter into and perform this Agreement.
  
• The execution of this Agreement does not violate any applicable laws or agreements.
  

Seller further represents that:

• The Shares are free from any liens, claims, or encumbrances.
  
• The Seller is the sole legal and beneficial owner of the Shares.
  

5. Conditions Precedent

5.1 This Agreement is subject to the fulfillment of:

• Any required board or shareholder approvals;
  
• Completion of legal or financial due diligence, if applicable;
  
• Regulatory filings, if required.
  

5.2 Pre-emptive rights:

The Seller and Purchaser acknowledge that the sale and purchase of the Shares are subject to any pre-emptive rights, rights of first refusal (ROFR), or rights of first offer (ROFO) contained in the Articles of Association or any Shareholders’ Agreement of the Company. The Seller confirms that:

• All such rights have either been complied with or validly waived by the entitled parties; and
• All notices, consents, or waivers required in respect of such rights have been duly obtained prior to the execution of this Agreement.

5.3 Tag-along and drag-along rights:

If the transfer of Shares by the Seller triggers any tag-along or drag-along rights under the Articles of Association or any Shareholders’ Agreement, the Seller confirms that:

• All relevant shareholders have been notified in accordance with the applicable provisions;
• Any shareholders exercising tag-along rights have been included in the transaction on the same terms and conditions as set out in this Agreement; and
• If drag-along rights have been exercised, the required majority consent has been obtained and all affected shareholders have been included in the transaction on identical terms.

6. Miscellaneous

• Governing Law: This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction].
  
• Dispute Resolution: Any dispute shall be resolved by [Arbitration / Courts] in [Jurisdiction].
  
• Entire Agreement: This Agreement constitutes the entire agreement between the Parties.
  
  

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

Seller: ____________________________
Name:
Title:

Purchaser: ____________________________
Name:
Title:

Disclaimer:

The sample Share Purchase Agreement (SPA) provided in this post is a simplified template meant for general understanding and illustrative purposes only. It does not account for jurisdiction-specific legal requirements, regulatory filings, stamp duty, tax implications, or company-specific provisions. Before using this agreement, consult a qualified legal professional and customize the documents in accordance with the laws applicable in your jurisdiction and the specific terms of your transaction.

Draft Share Transfer Agreement (STA)

Note: Use this Share Transfer Agreement template. Make a copy and customize it to suit your deal terms and applicable laws.

------------Share Transfer Agreement (STA)------------

THIS SHARE TRANSFER AGREEMENT ("Agreement") is entered into on [Date], by and between:

• Transferor: [Full Legal Name], residing at / having its registered office at [Address] ("Transferor");
  
• Transferee: [Full Legal Name], residing at / having its registered office at [Address] ("Transferee").
  

WHEREAS, the Transferor is the legal and beneficial owner of [number] [class] shares of [Company Name], a company incorporated under the laws of [jurisdiction] (the “Company”), and desires to transfer the said shares to the Transferee.

1. Transfer of Shares

1.1 The Transferor agrees to transfer, and the Transferee agrees to accept the transfer of, [number] [class] shares (the “Shares”) of the Company for a consideration of [Amount in currency] (the “Transfer Price”).

2. Payment

2.1 The Transfer Price shall be paid by the Transferee to the Transferor on or before [Closing Date] via [Payment Method].

3. Conditions

3.1 This transfer is subject to:

• Approval of the Board of Directors of the Company (if required);
  
• Compliance with Right of First Refusal or other transfer restrictions as per the Articles of Association or Shareholders’ Agreement;
  
• Payment of applicable taxes or stamp duties.

3.2 Pre-emptive rights, tag-along, and drag-along rights

This transfer is further subject to compliance with the following:

• Pre-emptive rights: The Transferor confirms that the transfer of Shares has been offered to existing shareholders in accordance with any pre-emptive rights contained in the Articles of Association or Shareholders’ Agreement, and that any such rights have either been waived or have lapsed.
  
  
• Tag-along and drag-along rights:
  
  
  • If the transfer triggers tag-along rights, the Transferor affirms that eligible shareholders were given the opportunity to participate in the transfer on the same terms and conditions, and any such shareholders who elected to exercise their rights have been included.
    
  • If the transfer is being made pursuant to drag-along rights, the Transferor confirms that all required consents have been obtained in accordance with the Articles of Association or Shareholders’ Agreement, and all dragged shareholders are transferring their shares on identical terms.
    

4. Representations and Warranties

4.1 The Transferor warrants that:

• They are the sole legal and beneficial owner of the Shares;
  
• The Shares are free from encumbrances;
  
• All necessary consents and approvals for the transfer have been obtained.
  

5. Governing Law and Jurisdiction

This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction]. Any disputes shall be resolved through [Arbitration / Courts] in [Jurisdiction].

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

Transferor: ____________________________
Name:
Signature:

Transferee: ____________________________
Name:
Signature:

Disclaimer:

The sample Share Transfer Agreement (STA) provided in this post is a simplified template meant for general understanding and illustrative purposes only. It does not account for jurisdiction-specific legal requirements, regulatory filings, stamp duty, tax implications, or company-specific provisions. Before using this agreement, consult a qualified legal professional and customize the documents in accordance with the laws applicable in your jurisdiction and the specific terms of your transaction.