Stock Purchase Agreement Commentary

by Practical Law Corporate & Securities

A Practice Note that provides commentary on the key terms and conditions commonly found in a stock purchase agreement (SPA), also known as a share purchase agreement. This Practice Note offers an overview of the fundamental structure of an SPA, examining critical provisions such as the purchase and sale section, closing mechanics, covenants, and termination rights. It delves into the most heavily negotiated components, including the scope of the seller's and buyer's representations and warranties and their various limitations. The guidance also addresses mechanisms for managing financial risk, such as purchase price adjustments, earn-outs, and escrow arrangements. Furthermore, this Practice Note explores common closing conditions, post-closing indemnification provisions and their limitations like caps and baskets, and the growing role of representation and warranty (R&W) insurance in allocating risk between the parties in a stock acquisition.