Share purchase agreement (SPA)
The definitive contract for the sale of all (or a controlling portion of) a corporation's shares.
| Canada (common law) | Share purchase agreement, contractual (no specific statute) |
|---|---|
| Quebec (Civil Code) | Convention d'achat d'actions, art. 1373+ CCQ on sales |
| US (UCC) | Stock purchase agreement, governed by state contract law |
| UK (Companies Act, common law) | Share purchase agreement, generally English law |
Key SPA sections
A typical SPA has 8-10 substantive sections that allocate risk between buyer and seller:
- Purchase price and payment mechanics: closing cash, escrow, earn-out, working capital adjustment, equity rollover
- Representations and warranties: factual statements about the target — title to shares, corporate organization, financial statements, contracts, litigation, intellectual property, taxes, employees, environmental
- Covenants: conduct of business between signing and closing, pre-closing access, post-closing non-competes, employee retention
- Conditions to closing: regulatory approvals, third-party consents, no material adverse change, accuracy of reps
- Indemnification: caps, baskets, survival periods, escrow mechanics for breaches of reps and covenants
- Termination rights: outside date, no-shop, fiduciary out for public-company targets
Share deal vs asset deal
The SPA is the share-deal counterpart to the Asset Purchase Agreement (APA). Key differences:
- Share deal (SPA): buyer acquires the corporation itself, with all its assets and liabilities. Simpler from an operational continuity standpoint; preserves contracts, employees, and licences without re-assignment.
- Asset deal (APA): buyer acquires specific assets and assumes specific liabilities. More flexibility to leave behind unwanted assets or liabilities; requires consents for assigning contracts and re-issuing licences.
- Canadian tax considerations often favor share deals for sellers (LCGE eligibility, lower effective tax rate) and asset deals for buyers (step-up in tax basis of acquired assets).
Negotiation dynamics in Canadian M&A
Canadian SPA negotiations are heavily influenced by US precedents (NVCA model documents, ABA model SPA) but adapted to Canadian law. Key Canadian-specific points: bilingual issues for Quebec targets (English-only SPAs sometimes require Quebec-law sub-agreements); environmental indemnities for industrial targets; tax warranties covering CRA reassessment risk; and competition law conditions for transactions above HSR-equivalent thresholds (Investment Canada Act, Competition Act).
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