Share Purchase Agreement Guide

Buying or selling shares in a New Zealand company can look straightforward on the surface, but the real risk usually sits in the document you sign. Founders often focus on the price and timing, then miss the clauses that deal with hidden liabilities, earn-outs, restraints, or what happens if the financial information turns out to be wrong. Another common mistake is relying on headline terms in an email or term sheet and assuming the rest is “standard”. It rarely is.

A well-drafted share purchase agreement sets the legal rules for the deal, allocates risk between buyer and seller, and records what each side is actually promising. If you are acquiring a business through a company share sale, exiting your own company, or bringing in a strategic investor by way of an existing shareholder sale, this guide explains what a share purchase agreement does, the key terms to check, the common traps, and the process New Zealand businesses should expect before they sign.

Overview

A share purchase agreement is the main contract used when shares in a company are sold from one party to another. It does more than record the price. It also deals with what is being sold, when ownership changes, what promises are being made about the company, and what remedies apply if something goes wrong.

• Identify exactly which shares are being sold, and whether the buyer is purchasing all shares or only a portion.
• Check the purchase price mechanics, including deposits, adjustments, holdbacks, and earn-out terms.
• Review warranties, indemnities, and disclosure documents closely, as these clauses shift risk after completion.
• Confirm any conditions precedent, such as board approval, shareholder approval, finance, landlord consent, or key customer consent.
• Look at restraints, confidentiality, and handover obligations if the seller will stay involved after completion.
• Make sure the agreement works with the company constitution, any shareholders agreement, and Companies Office requirements.
• Clarify completion steps, including share transfers, director changes, resolutions, and delivery of records.

What Share Purchase Agreement Means For New Zealand Businesses

A share purchase agreement is the contract that turns a commercial deal into an enforceable legal transaction. In practice, it tells each party what they must do before completion, on completion, and after completion.

For a buyer, the agreement is about control and protection. The buyer wants confidence that the shares are validly issued, the seller owns them, the company has been operated as described, and any major risks have either been disclosed or covered through specific protections.

For a seller, the agreement is about certainty and liability limits. The seller wants to get paid on clear terms, avoid open-ended claims years later, and make sure any statements about the company are qualified by proper disclosures.

Share sale versus asset sale

This point matters early. A share purchase means the buyer acquires the shares in the company, and the company itself keeps its existing contracts, assets, liabilities, employees, records, and history unless documents say otherwise.

That is different from an asset sale, where selected business assets are transferred and liabilities may be left behind or transferred only by agreement. Founders sometimes choose a share sale because it is cleaner commercially, but the legal risk can be broader because the buyer is stepping into the company with all of its existing baggage.

Why the agreement matters so much

The main risk in a share sale is that the buyer acquires problems that were not obvious before signing. That could include unpaid leave liabilities, undocumented related-party transactions, weak customer contracts, unresolved privacy issues, or disputes under a commercial lease or supplier arrangement.

The agreement deals with this by setting out legal promises, usually called warranties, and in some cases indemnities. A warranty is a statement of fact or condition. If it is false, the buyer may have a claim, subject to the wording of the agreement. An indemnity usually gives a more direct path to recover specific losses tied to an identified risk.

Who uses a share purchase agreement

New Zealand businesses commonly use share purchase agreements in situations such as:

• a founder selling all or part of their stake to another founder or investor
• a competitor or strategic buyer acquiring an existing company
• a management buyout
• a group restructure involving related entities
• an investor exit where existing shares are sold rather than new shares being issued

The right document will depend on the deal structure. A share purchase agreement may sit alongside a shareholders agreement, a deed of restraint, employment arrangements for continuing founders, transitional services arrangements, or director and shareholder resolutions.

New Zealand context to keep in mind

New Zealand share sales often require more than just signing the sale document. You may also need to check the company constitution, any pre-emptive rights, drag-along or tag-along clauses, restrictions in a shareholders agreement, and whether existing financing documents require lender consent.

The Companies Act 1993 framework also matters. Share transfers, shareholder records, and director changes must be handled properly, and the company’s share register needs to reflect the transaction. If the target company has regulated activities, premises licences, government contracts, or sector-specific approvals, the buyer should also check whether a change in ownership triggers any notification or consent requirements.

Legal Issues To Check Before You Sign

The right time to fix risk allocation is before you sign, not after a problem appears. The agreement should match what the parties actually agreed in principle and should deal with the company’s real legal and commercial risks.

1. The shares being sold

The agreement should identify the seller, the buyer, the company, the class and number of shares, and whether the shares are fully paid. It should also confirm that the seller has legal title and the right to transfer them free from security interests, encumbrances, or third-party claims, unless those are expressly disclosed.

If there are multiple shareholders, check whether everyone needed for the transaction is actually a party. This is where deals can stall, especially where one minority shareholder has veto rights under the constitution or shareholders agreement.

2. Price and payment structure

The purchase price clause needs more attention than many founders expect. A fixed price is simple, but many deals include mechanics that change the final amount.

Common pricing structures include:

• a set price paid in full at completion
• a deposit on signing and the balance at completion
• a locked-box arrangement using historical accounts
• a completion accounts adjustment based on cash, debt, or working capital
• an earn-out where part of the price depends on future performance
• a retention or escrow where some funds are held back for potential claims

Earn-outs deserve special care. They often create disputes because the seller expects the business to be run in a way that maximises the earn-out, while the buyer wants freedom to manage the company after completion. If an earn-out is included, the formula, reporting rights, accounting treatment, and operational restrictions should be very clear.

3. Conditions precedent

Some transactions should not become unconditional until specific events happen. These are usually called conditions precedent.

Examples may include:

• board or shareholder approvals
• finance approval for the buyer
• third-party consents under major contracts
• landlord consent if the business lease restricts change of control
• release of security interests
• completion of due diligence to the buyer’s satisfaction
• key staff signing new employment or restraint terms

The agreement should say who is responsible for satisfying each condition, when it must be satisfied, and what happens if it is not.

4. Warranties and disclosure

Warranties are one of the most negotiated sections of a share purchase agreement. They cover the state of the company and can extend across corporate records, accounts, contracts, employment, disputes, intellectual property, privacy compliance, and regulatory matters.

A buyer will usually ask for warranties covering matters such as:

• the company is validly incorporated and has authority to carry on business
• the seller owns the shares and can transfer them
• accounts are accurate and not misleading in a material respect
• there are no undisclosed liabilities beyond ordinary trading
• major contracts are valid and there are no known material breaches
• the company has complied with employment obligations
• there are no unresolved disputes, claims, or investigations, except as disclosed
• the company owns or has rights to use key intellectual property
• privacy practices and customer data handling comply with applicable data protection requirements

Sellers usually qualify these statements by making disclosures against them. The quality of the disclosure process matters. A vague statement that “normal commercial issues may exist” is very different from a specific disclosure that a named customer has threatened to terminate a contract.

5. Indemnities for known risks

If a particular issue has already been identified, a general warranty may not give enough protection. This is where a specific indemnity can help.

For example, if the company is dealing with a historic employment issue, a disputed supplier invoice, or a possible breach under a lease, the buyer may ask the seller to indemnify losses arising from that known matter. Sellers should make sure indemnities are tightly defined and not drafted too broadly.

6. Liability limits and claim process

A seller should not assume liability clauses are minor boilerplate. They can have a major effect on the practical value of the deal.

Important points include:

• time limits for bringing claims
• minimum claim thresholds and basket amounts
• caps on total seller liability
• whether certain warranties are fundamental and have higher caps
• how notice of a claim must be given
• whether the seller can control defence of third-party claims
• whether losses must be mitigated or offset by insurance recoveries

This is where founders often get caught. A buyer may think they are protected, but short time bars or narrow claim procedures can make a valid complaint hard to recover in practice.

7. Restraints, confidentiality, and handover

If the seller has relationships with customers, staff, or suppliers, the buyer may want restraint clauses to stop the seller competing, poaching staff, or soliciting customers for a period after completion. These clauses need careful drafting to improve the chance they will be enforceable.

Confidentiality obligations also matter, especially where the seller retains sensitive information after the transaction. If the seller will help during a transition period, the agreement or related documents should define what support is required, for how long, and whether the seller is paid for it.

8. Completion steps and post-completion administration

The legal work does not end when everyone agrees on the price. Completion usually requires coordinated documents and company records.

Typical completion items include:

• signed share transfer documents
• board and shareholder resolutions
• director resignations and appointments
• delivery of statutory records, registers, passwords, and financial information
• release of guarantees or security interests where agreed
• updates to the share register and Companies Office records where required

If these steps are not managed properly, the buyer may pay but still face delays in control, banking access, or legal record-keeping.

Common Mistakes With Share Purchase Agreement

Most share sale disputes start with points the parties assumed were obvious. The safest approach is to spell out the detail while everyone is still aligned.

Treating the agreement like a template exercise

A generic template may not reflect the actual company, ownership structure, or risk profile. A software business with customer data issues, a manufacturing company with supply chain commitments, and a hospitality business with lease and staffing exposure do not present the same legal concerns.

The agreement should be tailored to the target company’s contracts, records, liabilities, and commercial reality.

Relying on due diligence alone

Due diligence is useful, but it does not replace contractual protection. Buyers sometimes think that if they have had access to documents, they no longer need strong warranties or indemnities. That can leave gaps.

Due diligence helps identify issues. The agreement decides who bears the risk of those issues, and what happens if information was incomplete or inaccurate.

Using vague disclosure language

Sellers sometimes believe broad disclosure wording will protect them from later claims. Usually, poor disclosure creates more uncertainty, not less.

Specific disclosure works better. It should identify the issue clearly enough that the buyer can understand the nature and likely impact of the risk before signing.

Ignoring other deal documents

A share purchase agreement rarely sits alone. Problems often arise where it conflicts with the constitution, an existing shareholders agreement, bank documents, key commercial contracts, or side letters between founders.

Before you sign, check the whole document stack. A transfer right in one document may be restricted in another.

Missing change of control risks

Even where the company itself is not changing as a legal entity, some contracts treat a share sale as a change of control requiring consent. This often appears in leases, finance documents, franchise arrangements, software licences, and major customer contracts.

If consent is needed and not obtained, the buyer could inherit a breach on day one.

Leaving post-completion roles unclear

In founder-led businesses, the seller often stays for a period as an employee, consultant, or transition support person. Trouble starts when everyone assumes the handover will “just work”.

The parties should document:

• the seller’s ongoing role, if any
• how long that role lasts
• what remuneration applies
• who controls key decisions after completion
• what access the seller has to information, systems, and staff

Forgetting practical records and sign-offs

Deals can be delayed by missing signatures, unsigned resolutions, incorrect shareholder details, or outdated registers. These issues feel administrative, but they can affect legal ownership and governance.

Good completion planning matters, especially where settlement funds, director changes, and banking authority changes all need to happen together.

FAQs

What is included in a share purchase agreement?

A share purchase agreement usually includes the parties, details of the shares being sold, purchase price, payment terms, conditions precedent, warranties, indemnities, restraint clauses, confidentiality, completion mechanics, and liability limits. It may also attach disclosure material and a completion checklist.

Is a share purchase agreement legally required in New Zealand?

The law does not prescribe one fixed form, but in most business share sale transactions a written agreement is the practical legal document that records the deal and allocates risk. Relying on verbal promises or short-form emails is risky, especially where the company has staff, contracts, debt, or historic liabilities.

What is the difference between a share purchase agreement and a shareholders agreement?

A share purchase agreement deals with the sale transaction itself. A shareholders agreement governs the ongoing relationship between shareholders after the deal, including decision-making, transfer rights, and exit provisions. Some transactions require both.

Can a seller still be liable after completion?

Yes. If the agreement includes warranties or indemnities, the seller may remain liable after completion if those obligations are breached. The extent of that liability depends on the agreement’s caps, time limits, exclusions, and claim procedure.

Do I need legal review before signing a share purchase agreement?

Usually, yes. The biggest risks are often hidden in warranty drafting, liability limitations, disclosure wording, earn-out mechanics, and completion conditions. A contract review before you sign can help prevent disputes that are much harder to fix later.

Key Takeaways

• A share purchase agreement is the core contract for buying or selling shares in a company, and it does much more than record the price.
• The agreement should clearly cover the shares being sold, payment terms, conditions precedent, warranties, indemnities, restraints, and completion steps.
• Buyers should focus on hidden liabilities, disclosure quality, change of control issues, and whether the company’s records and contracts support the deal.
• Sellers should pay close attention to liability caps, time limits, claim procedures, and the scope of any indemnities or post-sale restraints.
• The agreement needs to work with the constitution, any shareholders agreement, key commercial contracts, and Companies Office record-keeping requirements.
• Before you sign, get the legal terms aligned with the real commercial deal, especially if there is an earn-out, a staged handover, or known business risk.

If you want help with warranties, indemnities, disclosure letters, and completion documents, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.