A Stock Purchase Agreement (SPA) is a legal contract governing the sale of shares in a corporation from a selling shareholder to a buyer. Unlike an asset purchase where specific business assets are acquired, a stock purchase transfers ownership of the corporate entity itself, including all of its assets, liabilities, contracts, permits, and obligations. The buyer effectively steps into the shoes of the departing shareholder.

Stock purchase transactions are governed by a combination of state corporate law (such as the Delaware General Corporation Law or the Model Business Corporation Act adopted by most states), federal securities regulations under the Securities Act of 1933 and the Securities Exchange Act of 1934, and applicable state securities (Blue Sky) laws. For private company transactions, sellers typically rely on exemptions from registration under Regulation D (17 CFR 230.501-508) or state exemptions for isolated transactions.

The fundamental distinction between stock and asset purchases lies in liability transfer. In a stock purchase, the buyer acquires the corporate entity with all its existing liabilities -- known and unknown -- including pending litigation, tax obligations, environmental liability, and contractual commitments. This makes extensive representations, warranties, and indemnification provisions essential. The tax treatment also differs significantly: sellers in stock transactions generally receive capital gains treatment under IRC Section 1001, while the corporation's tax basis in its assets remains unchanged (unlike asset purchases where the buyer receives a stepped-up basis).

When a shareholder wants to sell their ownership stake in a closely held corporation to a co-shareholder, employee, or outside buyer, particularly when existing shareholder agreements include buy-sell provisions or rights of first refusal. When acquiring 100% of a corporation's stock to gain control of the entire business, including non-assignable contracts, government permits, and professional licenses that cannot transfer through an asset sale.

When an investor is purchasing a minority interest in a private company and needs to establish the price per share, transfer restrictions, and governance rights. When a company's founders are transitioning ownership to management through an equity buyout, often financed through seller notes or leveraged arrangements. When redeeming shares from a departing shareholder in accordance with buy-sell agreement trigger events such as retirement, disability, death, or termination.

Without a properly drafted Stock Purchase Agreement, buyers risk acquiring shares encumbered by undisclosed restrictions, failing to comply with securities law exemption requirements, or inheriting corporate liabilities that exceed the value of the business. Sellers risk post-closing claims for misrepresentation if they fail to make adequate disclosures.

Share identification -- specify the exact number of shares being sold, the class of stock (common, preferred, voting, non-voting), par value, and certificate numbers. State whether the shares represent a controlling interest, minority interest, or the entire outstanding equity of the corporation.

Purchase price and payment terms -- detail the price per share, total purchase price, payment method, and any contingent consideration such as earn-out provisions tied to future business performance. If seller financing is used, attach a promissory note with interest rate, payment schedule, and default provisions.

Representations and warranties -- the seller must represent that they have clear title to the shares free of liens, pledges, and encumbrances; that the shares are validly issued, fully paid, and non-assessable; and that the sale does not violate any existing shareholder agreements, buy-sell provisions, or rights of first refusal. The company's representations should cover financial statements, tax compliance, pending litigation, material contracts, employee matters, and regulatory compliance.

Securities law compliance -- address applicable securities law exemptions. For private transactions, include investment representations from the buyer confirming accredited investor status, investment intent (not for resale), and acknowledgment that the shares are restricted securities bearing a restrictive legend under Rule 144.

Transfer restrictions and shareholder agreements -- address any existing shareholder agreements, voting agreements, or buy-sell agreements that may restrict the transfer. Confirm that required consents, waivers, or approvals have been obtained from other shareholders or the board of directors.

Closing conditions -- specify conditions precedent such as satisfactory completion of due diligence, board approval, shareholder approval (if required by the corporation's bylaws or applicable state law), regulatory approvals, and third-party consents.

Indemnification -- establish comprehensive indemnification obligations for breaches of representations and warranties, with caps, baskets (deductible thresholds), survival periods (typically 18-36 months, longer for fundamental representations), and escrow provisions. Address the treatment of known versus unknown liabilities.

Post-closing covenants -- include non-compete and non-solicitation agreements from the seller, transition assistance obligations, cooperation on tax matters (including filing final tax returns), and provisions for resolving post-closing purchase price adjustments based on closing date working capital.