How To Create A Sale Of Shares Agreement In Australia

Selling or buying shares in a private company is a big step - whether you’re bringing in a new investor, exiting part of your ownership, or completing a full buyout.

The document that captures the deal is a Sale of Shares Agreement (often called a Share Sale Agreement). While it isn’t always legally required, it’s strongly recommended. A clear agreement protects both sides, reduces risk and helps you complete the transaction smoothly with the right approvals and paperwork.

In this guide, we’ll walk through what a Sale of Shares Agreement covers, when to use one (and when an asset sale might be better), a practical step-by-step for drafting and completion, the key clauses to include, and the approvals and deliverables you’ll likely need in Australia.

What Is A Sale Of Shares Agreement?

A Sale of Shares Agreement is a contract between a seller (the current shareholder) and a buyer setting out the terms on which a specified number of shares in a company will be transferred for an agreed price.

It’s different from a sale of business assets (like equipment, contracts or IP). In a share sale, the buyer acquires shares and, through them, indirect ownership of everything inside the company (including assets, liabilities, employees and contracts). With an asset sale, the buyer can select certain assets and leave some liabilities behind. If you’re still weighing up structure, compare an asset sale vs a share sale so the deal aligns with your goals and risk appetite.

Because a share sale changes who controls the company, your agreement will generally go deeper than just price and number of shares. Expect clauses covering warranties, pre-completion conditions, restraints, post-completion obligations and the mechanics of completion.

When Do You Need One - And Could An Asset Sale Be Better?

You’ll usually use a Sale of Shares Agreement when:

• Founders sell a portion (or all) of their shares to a new owner or investor.
• One shareholder exits and the remaining shareholders (or the company) buy them out.
• Ownership is reorganised within a corporate group (often with a simplified transfer but the core terms still matter).

Consider an asset sale instead if the buyer only wants certain assets or wants to avoid legacy liabilities. If a share sale is appropriate, plan for thorough due diligence because the buyer inherits the company “as is”.

Pricing is often supported by an independent valuation or formula, so it’s worth understanding common methods for valuing shares in private companies.

Also think about the type of shares being sold. If your company has multiple classes, voting and dividend entitlements can differ. Brush up on different classes of shares so there are no surprises.

Step-By-Step: Drafting And Completing A Share Sale In Australia

1) Align On Deal Structure And Price

Start by agreeing on what’s being sold (number and class of shares), who’s buying, the price (and how it’s calculated), and how it will be paid (cash on completion, deferred payments, an earn-out, or a mix).

Be clear on any adjustments (e.g. working capital adjustment) and what happens if milestones aren’t met under any deferred or earn-out arrangement.

2) Check The Constitution And Shareholders’ Rights

Before you draft terms, confirm the sale is permitted. Many companies have pre-emptive rights (other shareholders can buy first), drag or tag-along rights, or board/shareholder approval processes. Your agreement needs to reflect these or include any required waivers.

If your company’s governance documents are outdated or missing, it may be time to adopt a fresh Company Constitution and put a Shareholders Agreement in place for future transactions.

3) Conduct Due Diligence

Buyers should review company records and legal risks before committing. This typically includes financials, tax, disputes or claims, material contracts, employee arrangements, IP ownership and compliance history.

Findings often influence warranties, indemnities and price. Significant issues may lead to conditions precedent or specific remediation steps before completion.

4) Draft The Sale Of Shares Agreement

Your agreement should set out the price, shares, conditions, warranties, restraints and completion steps. It should also make clear how disputes are handled, what law applies and how announcements will be managed.

Depending on the deal, you may also need supporting documents such as board and shareholder resolutions, a disclosure letter, restraint undertakings and updated company registers.

5) Obtain Approvals And Satisfy Conditions

Most agreements include conditions precedent - things that must happen before completion. Common conditions include board/shareholder approvals, waivers of pre-emptive rights, key third-party consents (for change-of-control clauses), and finance or security releases.

If consideration is staged, spell out milestones, definitions, calculation methods and verification processes to avoid future disputes.

6) Complete The Transfer

On completion, the parties exchange signed documents and funds and the company updates its share register. In most private deals, there is no routine ASIC form to lodge for a simple share transfer, but the company must keep its register current and reflect the transfer accurately. ASIC only needs to be notified when certain company details change (for example, directors or share structure), and otherwise via the annual review process.

If you’re coordinating the practicalities, this overview of how to transfer shares is a helpful reference, along with ASIC considerations in this transfer of shares compliance guide.

Note: Companies commonly issue a share certificate as part of completion, but under Australian law share certificates are not mandatory for private companies. What is required is a properly maintained share register and compliance with the company’s constitution and the Corporations Act.

Key Clauses To Include In Your Share Sale Contract

Parties, Shares And Price

• Who the parties are (including multiple sellers or buyers if relevant) and their details.
• Number and class of shares being sold, and whether any are partly paid.
• Purchase price, currency, payment method and timing (including any deferred consideration or earn-out).

Conditions Precedent

• Board and/or shareholder approvals (if required by the Constitution or any Shareholders Agreement).
• Waivers/satisfaction of pre-emptive rights, and any tag/drag or rights of first refusal processes.
• Release of security interests (if any) and key third-party consents for change-of-control clauses.

Warranties And Indemnities

• Seller warranties about title to the shares (good title, free of encumbrances) and authority to sell.
• Company warranties regarding financials, tax, litigation, compliance, IP and contracts (often qualified by a disclosure letter).
• Indemnities for specific known risks identified during due diligence.
• Limitations on claims (time limits, caps, thresholds, knowledge and materiality qualifiers).

Restrictive Covenants

• Reasonable non-compete and non-solicitation restrictions on the seller (if they’re exiting), tailored by scope, geography and duration to support enforceability.

Completion Mechanics

• Exactly what happens at completion: fund flows, signed transfer forms, board minutes, updated registers, any resignations/appointments of directors and delivery of post-completion packs.
• Post-completion obligations such as updating internal registers, issuing any agreed statements or certificates, and handling communications to stakeholders.

Dispute Resolution, Governing Law And Announcements

• How disputes are handled (negotiation, mediation, arbitration or litigation) and the governing law (an Australian state or territory).
• Confidentiality obligations and any rules regarding media or investor announcements, which can be sensitive around changes of ownership.

Approvals, Compliance And Practical Deliverables

Company Approvals And Shareholder Rights

Check the Constitution and any Shareholders Agreement early for pre-emptive rights, consent requirements, and voting thresholds. If rights of first refusal apply, build in notices or obtain waivers before signing. Where your governance is outdated, consider updating your Company Constitution and formalising a Shareholders Agreement to reflect new ownership.

ASIC And Company Register

Private companies must keep their share register up to date. For simple transfers between existing and new shareholders, there’s generally no immediate ASIC form to lodge. ASIC does need to be notified if there’s a change to certain company details (like directors, registered office or share structure). Otherwise, ensure the transfer is reflected in the register and captured at the annual review.

Tax And Duty Considerations (Important)

Share sales can have tax consequences for both parties (for example, capital gains tax for sellers and potential duty in some states/territories, including landholder duty in particular circumstances). Your agreement can allocate responsibility for pre- and post-completion tax liabilities and include tax warranties and indemnities, but you should obtain independent tax advice tailored to your circumstances. Sprintlaw does not provide tax advice.

Employment, Contracts And Change-Of-Control

In a share sale, the employer entity usually remains the same, so employment contracts continue. However, some material contracts include change-of-control clauses that require consent. Plan these consents as conditions precedent so they’re secured before completion.

Disclosure Letter And Data Room

It’s common for sellers to deliver a disclosure letter that qualifies warranties by disclosing known issues. If you’re using a data room, make sure the agreement defines how those documents are incorporated into disclosure and how that affects liability and limitations.

Completion Pack Checklist

• Executed Sale of Shares Agreement and disclosure letter.
• Board minutes approving the transfer (and any director appointments/resignations).
• Signed share transfer forms for each seller–buyer pair.
• Updated share register (and any agreed certificates or statements for the buyer).
• Evidence of funds transfer and any releases of security interests.
• Internal notes of ASIC-related follow-ups (if any company details change).

For a broader overview of the end-to-end process, see this guide to the sale of shares in a private company.

Common Variations And Practical Tips

Variations You’ll Want To Address Early

• Deferred consideration or earn-outs: Define milestones, KPIs, accounting policies, calculation methods, verification rights and dispute processes.
• Vendor finance: If the seller finances part of the price, consider security (e.g. share mortgage or guarantee) to protect repayment.
• Partial exits: Where the seller retains some shares, align on post-deal roles, board seats, restraints and information rights.
• Multi-class shares: Confirm rights and restrictions attached to the class being transferred to avoid unexpected voting or dividend outcomes.

Tips To Avoid Pitfalls

• Be precise about what’s being sold - class, number and whether shares are fully paid.
• Don’t skip governance checks - pre-emptive rights and approvals can derail timelines if missed.
• Use a clear completion checklist and specimen documents so the paperwork flows smoothly on the day.
• Document any handover or transitional assistance (systems access, introductions) to reduce friction post-completion.

FAQs: Quick Answers To Common Share Sale Questions

Is a Sale Of Shares Agreement legally required?

No - you can, in theory, transfer shares with minimal documentation. But a tailored written agreement is best practice because it records price and terms, allocates risk (warranties/indemnities), sets conditions and defines completion mechanics. It significantly reduces the chance of disputes.

Do we need to notify ASIC for a private share transfer?

Not usually for a simple transfer between shareholders. The company must update its internal share register. ASIC must be notified when certain company details change (for example, directors, registered office or share structure), and otherwise through the annual review process. If you’re unsure, review the steps for transfers in private companies.

Do we have to issue a share certificate?

No. Share certificates aren’t mandatory for private companies under Australian law. Many companies still issue them by choice. What matters legally is an accurate, up-to-date share register and compliance with the Constitution.

What about tax and duty?

There may be capital gains tax for sellers and, depending on the jurisdiction and thresholds, duty (including landholder duty) could apply. These rules are complex and state-based. Get independent tax advice - Sprintlaw does not provide tax advice - and reflect any tax allocation in the agreement.

What if we’re only selling assets instead?

That’s a different structure. An asset transaction transfers specific assets and contracts. It can be cleaner for buyers who want to avoid liabilities, but may require more third-party consents. Compare a share sale vs asset sale to decide what suits your goals.

Key Takeaways

• A Sale of Shares Agreement documents the transfer of ownership and, while not legally required, it’s the safest way to set price, risk allocation and completion mechanics.
• Check the Constitution and any Shareholders Agreement early - pre-emptive rights and approvals can impact timing and terms.
• Buyers inherit the company “as is” in a share sale, so conduct thorough due diligence and negotiate appropriate warranties, indemnities and limitations.
• For most private transfers there’s no routine ASIC lodgement, but the company must promptly update its share register and handle any required consents.
• Plan tax and duty early with independent advice, and capture responsibilities in the agreement (Sprintlaw doesn’t provide tax advice).
• If you’re unsure about deal structure, weigh a share sale vs an asset sale, and consider valuation, classes of shares and your risk tolerance.

If you’d like a consultation on creating a Sale of Shares Agreement in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.