Difference Between Share Purchase Agreement and Share Subscription Agreement

This article clarifies the distinctions between Share Purchase Agreements (SPA) and Share Subscription Agreements (SSA), two crucial documents in corporate finance.

Introduction:

While both deal with shares, they serve distinct purposes and are used in different situations. In this article, we’ll explore the differences between Share Purchase Agreement And Share Subscription Agreement to help you understand their roles better.

In the realm of corporate finance and investments, legal documents play a pivotal role in safeguarding the interests of the parties involved. Two such documents that revolve around the transfer of shares in a company are Share Purchase Agreements (SPA) and Share Subscription Agreements (SSA). 

Share Purchase Agreement (SPA): Everything You Need to Know

A Share Purchase Agreement (SPA) is a legal contract that outlines the terms and conditions of the sale and purchase of existing shares in a company. Here are the key features of an SPA:

1. Transfer of Existing Shares:

• An SPA is used when one party (the seller) intends to sell their existing shares in a company to another party (the buyer).
• It covers the specifics of the share transfer, including the number of shares, price, and payment terms.

2. Due Diligence:

• Before entering into an SPA, both parties typically conduct due diligence to assess the company’s financial health and legal standing.
• Due diligence helps the buyer evaluate the risks associated with the purchase.

3. Negotiation and Drafting:

• SPA negotiations involve both parties agreeing on the terms and conditions, which are then documented in the agreement.
• The SPA is drafted to protect the interests of both the buyer and seller.

4. Closing Conditions:

• SPA often includes closing conditions, such as obtaining necessary approvals and the delivery of share certificates.
• Once all conditions are met, the transaction is completed, and the shares are transferred.

Share Subscription Agreement (SSA): Everything You Need to Know

A Share Subscription Agreement (SSA) is a legal document used when a company issues new shares to investors. Here are the key features of an SSA:

1. Issuance of New Shares:

• An SSA is employed when a company wants to raise capital by issuing new shares to investors.
• Investors subscribe to these new shares at an agreed-upon price.

2. Investment Terms:

• SSA outlines the investment terms, including the number of shares subscribed, the subscription price, and the payment schedule.
• It may also include provisions related to the use of funds raised.

3. Regulatory Compliance:

• SSA ensures compliance with legal and regulatory requirements, including the approval of existing shareholders if necessary.
• It also addresses any conditions set forth by regulatory authorities.

4. Rights and Obligations:

• SSA specifies the rights and obligations of both the company and the investors.
• This may include details on voting rights, information rights, and exit options.

Differences Between SPA and SSA:

1. Nature of Shares:

• SPA deals with the transfer of existing shares from one party to another.
• SSA involves the issuance of new shares by the company to investors.

2. Parties Involved:

• In SPA, the parties are typically the current shareholder (seller) and the prospective shareholder (buyer).
• In SSA, the parties include the company issuing shares and the investors subscribing to them.

3. Purpose:

• SPA facilitates the sale of shares for various reasons, such as exiting the company, divesting assets, or changing ownership.
• SSA is primarily used to raise capital by selling new shares to investors for business expansion, development, or operational needs.

4. Due Diligence:

• Due diligence in SPA focuses on the company’s past performance, financials, and legal standing.
• In SSA, due diligence is often conducted by investors to assess the company’s future potential, business plans, and risks.

5. Documentation:

• SPA documents the transfer of shares, outlining the terms and conditions of the sale.
• SSA documents the issuance of new shares, specifying investment terms and regulatory compliance.

Conclusion

In the world of corporate finance and investments, understanding the distinctions between Share Purchase Agreements (SPA) and Share Subscription Agreements (SSA) is crucial. While both involve shares, SPAs are used for the transfer of existing shares between parties, while SSAs pertain to the issuance of new shares by a company to raise capital.

When navigating the complexities of these agreements, it’s essential to seek expert guidance. Vakilsearch offers corporate SPA and SSA negotiation and drafting advisory services. Our experts can ensure that your legal documents align with your objectives and protect your interests. Get in touch with us right away!

FAQs:

Q1: Can an existing shareholder participate in a Share Subscription Agreement (SSA)?

A1: Yes, existing shareholders may participate in an SSA by subscribing to additional shares if the company offers them the opportunity.

Q2: Are SPAs and SSAs legally binding agreements?

A2: Yes, both SPAs and SSAs are legally binding contracts that outline the terms and conditions of the share transfer or subscription.

Q3: What happens if the conditions outlined in an SPA or SSA are not met?

A3: If the conditions in an SPA or SSA are not met, the transaction may not proceed, and the parties may need to renegotiate or terminate the agreement.

Q4: How can Vakilsearch assist with SPA and SSA negotiation and drafting?

A4: Vakilsearch offers expert advisory services to help you navigate the complexities of SPA and SSA negotiation and drafting. We ensure that your legal documents align with your objectives and protect your interests.

Also, Read:

• Why Share Purchase Agreement is Important?
• How to Draft Share Purchase Agreement
• Reasons to Have a Shareholders Agreement