Creating Share Purchase Agreements: Australian Legal Considerations

Bringing a new investor on board or transferring shares between founders is a big step. To keep things clear and reduce risk, you’ll usually put the deal in a Share Purchase Agreement (SPA). Think of it as a roadmap for the transaction - who’s buying, what’s being sold, how much is being paid, and what each party promises.

If you’re feeling unsure about where to start, you’re not alone. The good news is that with the right structure and a practical checklist, you can draft, negotiate and complete a share sale with confidence - and set your company up for long‑term success.

Below, we break down what an SPA does, the key clauses to include, the steps to get from term sheet to completion, and the main Australian laws to keep in mind. We’ll also flag common pitfalls so you can avoid them.

What Is A Share Purchase Agreement (SPA)?

A Share Purchase Agreement is a contract where one party agrees to buy shares from another party. In Australia, SPAs are commonly used when:

• A new or existing investor buys into a private company (Pty Ltd)
• Founders or employees transfer shares between themselves
• There’s a management buy‑out or a secondary sale during a capital raise
• A buyer acquires control by purchasing existing shares

An SPA is different from a “share subscription” (where the company issues new shares). In practice, deals can combine both - for example, a buyer might subscribe for new shares and also buy some from an existing holder.

It’s also different from buying business assets. If you’re weighing up which structure suits you, it’s worth comparing a share sale vs an asset sale early in the process.

Essential Clauses To Cover

Every deal is unique, but most Australian SPAs cover the same core issues. Your template should be tailored to your company’s constitution and any existing shareholder arrangements.

1) Parties, Shares And Price

• Parties and capacity: Legal names, ACNs/ABNs, and authority to sign.
• Shares: Number, class, fully paid status, and rights attached (e.g. voting, dividends).
• Price and payment: Total purchase price, deposit (if any), escrow arrangements, earn‑outs or adjustments, and payment method.

2) Conditions Precedent

• Approvals: Board or shareholder approvals (as required by your Company Constitution). If a Shareholders Agreement exists, check pre‑emption rights, drag/tag provisions and transfer restrictions.
• Third‑party consents: Lenders, landlords, key customers or suppliers if contracts require consent on a change of control.
• Regulatory clearances: Only if applicable (e.g. foreign investment approvals in specific scenarios).

3) Warranties, Indemnities And Disclosures

• Seller warranties: Title to the shares, capacity, no undisclosed encumbrances, the accuracy of financials, compliance and litigation status.
• Buyer warranties: Capacity, funding, investment purpose (as relevant).
• Disclosure materials: Data room or disclosure letter to qualify warranties.
• Indemnities: Tailored protections for identified risks (e.g. tax, IP, or employment claims).
• Limitations: Caps, baskets, time limits and knowledge qualifiers to balance risk.

4) Completion Mechanics

• Who does what on the day: Delivery of transfer forms, payment, board resolutions, updates to the members register and issue of any holding statements.
• Notifying the regulator: Private companies must update ASIC after certain share changes; see the practical steps in this guide on transferring shares in private companies.

5) Post‑Completion And Transitional Matters

• Access and assistance: Handover of records, passwords, and introductions to key stakeholders.
• Restraints: Reasonable non‑compete, non‑solicit and non‑poach obligations (tailored to Australian law).
• Confidentiality: Ongoing obligations and permitted disclosures.

6) Boilerplate (Still Important)

• Governing law and jurisdiction: Nominate an Australian state or territory.
• Notices and variation: How communications and amendments occur.
• Execution: Company execution methods (including electronic signing) - these can follow section 127 of the Corporations Act; more on signing under section 127.

Step‑By‑Step: Preparing, Negotiating And Completing A Share Sale

Here’s a practical sequence to move from idea to completion day with fewer surprises.

1) Align On The Deal And Check The Rules

• Agree the headline terms: Price, percentage, timing and any earn‑out. A simple term sheet helps avoid confusion later.
• Check internal rules early: Confirm any pre‑emptive rights, drag/tag rights or consent requirements set out in your Shareholders Agreement or Company Constitution.

2) Due Diligence And Disclosures

• Buyer checks: Financials, contracts, IP ownership, employment, compliance, litigation and insurance.
• Seller prep: Organise a clean data room, resolve obvious issues, and prepare a thorough disclosure letter to qualify warranties.
• Valuation: If you’re debating price, a structured approach to valuing shares in a private company can help set realistic expectations.

3) Draft, Negotiate And Document

• Start from a solid base: Use a reliable SPA template and tailor it to your risks and the company’s stage.
• Match the mechanics to reality: If crossing time zones, electronic execution and escrow may be practical.
• Keep registers in mind: Plan how the transfer will be recorded and how members and share structure changes will be reported to ASIC (if required).

4) Completion Checklist

• Resolutions and consents: Board/shareholder approvals, officer appointments or resignations.
• Transfer forms and payment: Ensure transfer forms are correctly executed, payment is made, and settlement mechanics are clear.
• Registers and filings: Update the members register and notify ASIC of changes to shareholdings or share structure within the required timeframe - see this overview of off‑market share transfers for context.
• Certificates/holding statements: Share certificates are not always mandatory for proprietary companies; many issue electronic holding statements instead. If you do use them, this guide to share certificates covers the basics.

5) After Completion

• Handover: Provide access to systems, assign domain names or IP as needed, and transition key relationships.
• Integrations: Update cap tables, investor relations materials and bank mandates.

Australian Laws And Compliance Considerations

SPAs don’t “guarantee compliance” by themselves. You still need to make sure the deal is structured and documented consistently with Australian law and your company’s rules. Here are the big-ticket items to consider.

Corporations Act And ASIC Process

• Share transfers: In a private company, transfers typically occur off‑market, and you’ll update the members register and notify ASIC of relevant changes.
• Company rules: Your constitution and any shareholder arrangements can restrict transfers or require consents. Failing to follow them can delay or invalidate a transfer, so check them first.
• Execution: Companies can sign under section 127 (including electronically) if the requirements are met.

Misleading Or Deceptive Conduct

• Financial products are treated differently: Shares are financial products. Misleading or deceptive conduct in relation to shares is primarily regulated under the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Corporations Act (e.g. section 12DA of the ASIC Act and section 1041H of the Corporations Act).
• What this means: Be accurate in representations, forecasts and data room materials. Use a robust disclosure letter to qualify warranties where appropriate.

Fundraising And Disclosure

• Issuing new shares? If your deal includes a subscription for new shares (not just a transfer), consider the small‑scale offering and other disclosure exemptions under the Corporations Act. Early‑stage companies often rely on the section 708 framework and similar exemptions to raise without a prospectus.
• Transfers only: Pure secondary transfers generally don’t trigger fundraising disclosure rules, but you should still avoid misleading statements and follow internal company rules.

Duty And Tax

• Stamp duty: Most share transfers in unlisted companies are not dutiable in many states and territories, but landholder duty can apply if the company (or a group) holds land above relevant thresholds. This is a state‑based assessment and needs to be checked for the specific jurisdiction.
• Tax on the sale: Sellers may trigger capital gains tax; buyers may have cost base considerations. GST generally does not apply to a transfer of shares. This is general information only - speak with your accountant or tax adviser before signing.

Privacy And Confidentiality

• Confidentiality: Use NDAs during negotiations and include strong confidentiality terms in the SPA.
• Personal information: If you’re sharing employee or customer data during due diligence, handle it in line with the Privacy Act and your privacy practices.

Related Documents, Company Setup And Practicalities

Beyond the SPA, a few supporting documents and setup steps often make the process smoother and reduce risk.

Company Setup And Shareholder Framework

• Company Constitution: The rulebook for company operations and share transfers. Many transactions hinge on what your Company Constitution allows.
• Shareholders Agreement: Sets decision‑making rules, pre‑emptive rights, exit processes and dispute mechanisms. If you don’t have one, consider putting a Shareholders Agreement in place alongside the SPA.
• Deed of Accession: New investors usually sign a deed to become party to existing shareholder arrangements; a Deed of Accession is the standard tool for this.

Execution, Records And Filings

• Execution block: Use clear company execution blocks and consider electronic execution where appropriate (and permitted by your counterparty’s requirements).
• Members register: Update promptly after completion and align with the transfer forms.
• ASIC updates: Lodge relevant changes within the required timeframe - this is covered in more detail in the guide to transferring shares in private companies.

Employment, IP And Commercial Contracts

• Key staff: Confirm robust employment or contractor terms are in place and up to date before a sale closes.
• IP assignments: Ensure IP created by founders, employees and contractors is properly assigned to the company.
• Change‑of‑control clauses: Check if any material contracts require notification or consent on a change of control.

Practical Tips To Keep Things Moving

• One source of truth: Keep a simple completion checklist and data room index so both sides can track progress.
• Plan for timing: Bank cut‑offs, cross‑border time zones and signatory availability often drive completion timing - build these into your plan.
• Document hygiene: Make sure names, ACNs and share numbers match across your SPA, transfer forms and registers.

Common Pitfalls To Avoid

Most SPA headaches are avoidable with early checks and clear drafting. Watch for:

• Skipping the internal rule check: Not following pre‑emptive rights or consent steps in your constitution or shareholder arrangements can delay or derail a deal.
• Over‑reliance on a generic template: Foreign templates often reference laws that don’t apply in Australia or miss ASIC process steps for private companies.
• Unbalanced warranties and limits: Too light or too heavy can both cause problems. Calibrate warranties, caps and time limits to the deal size and risks.
• Sloppy completion mechanics: Missing signatures, mismatched transfer forms, or late ASIC updates can create rectification work and investor frustration.
• Assuming certificates are compulsory: Many proprietary companies use electronic holding statements instead; follow what your constitution allows and keep records consistent.
• Forgetting tax and duty checks: Get early input from your accountant on capital gains tax, landholder duty and any timing impacts.

Key Takeaways

• A Share Purchase Agreement sets the commercial terms and risk allocation for a share transfer - tailor it to your company’s rules and the deal, rather than relying on a one‑size‑fits‑all template.
• Build your SPA around clear clauses on price, conditions precedent, warranties and indemnities, completion mechanics and post‑completion obligations.
• Check your Shareholders Agreement and Company Constitution early for pre‑emptive rights, transfer restrictions and consent requirements.
• Shares are financial products - misleading or deceptive conduct is regulated under the ASIC Act and Corporations Act; align your disclosures and warranties accordingly.
• Consider landholder duty in relevant states and the seller’s CGT position; this is general information only, so get independent accounting advice before you sign.
• Plan the mechanics: off‑market transfer documents, updates to registers, ASIC notifications and practical execution under section 127 - resources on off‑market transfers and ASIC updates can help you map the steps.

If you’d like a consultation on creating or reviewing your Share Purchase Agreement (or you’re planning a buy‑in or secondary sale), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.