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When buying or selling shares in a private company it is important to enter into a share sale agreement to protect your interests. The share sale agreement sets out each party’s legal rights and obligations. The buyer can further reduce their risk by undertaking due diligence. This article explains the key share sale agreement terms, to help protect you and to ensure a smooth sale.

Key Terms of a Share Sale Agreement

A share sale agreement should include the following key terms:

  • Parties: participants in the sale and purchase;
  • Shares: both number and type;
  • Purchase price and adjustments
  • Pre-sale conditions: what should occur before the sale; 
  • Completion: how the sale will be finalised;
  • Warranties and indemnities: how risk will be allocated; 
  • Limitations on liability: restrictions on claims against the seller; 
  • Post-completion obligations: including restraints; and
  • Dispute resolution and termination.


The ‘parties’ are the seller and buyer of a business; both should be parties to the share sale agreement. If you are selling your company’s entire share capital, then all shareholders need to be parties to the agreement. If your company is wholly-owned, the selling shareholding is a single entity. 

However, if a party is a ‘shell’ company (i.e. has few or no assets), you should ask the company’s owners to act as a guarantor. The guarantor also enters into the share sale agreement and guarantees the company’s obligations. This helps to minimise risk in case something goes wrong at a later date and you wish to make a claim. An example of this is if a company is selling all of its business. 


The share sale agreement will set out both the number and type of shares being sold by each shareholder. It will be important to a buyer to understand the type of shares they are buying as different share types may have different rights. For example, for voting, dividends and capital. 

Purchase Price

The share sale agreement should include:

  • shares’ purchase price;
  • how the price will be calculated; and 
  • how the buyer will pay it. 

For simple share sales, the purchase price may be a fixed price payable in cash on the day the sale completes. 

More complex transactions occur when the sale is completed after:

  • the share sale agreement is entered into; 
  • certain conditions are satisfied;
  • adjustments to the price are made to account for costs (e.g. licences and council rates) and employee entitlements, ensuring they are allocated to the correct parties. 

In addition, the buyer may be entitled to pay the purchase price by:

  • issuing an equivalent number of shares to the seller; or 
  • issuing the shares in instalments after the sale completes (this is where a guarantor is useful to ensure that the instalments are paid).  

Pre-sale Conditions

Your share sale agreement should state whether any actions need to occur before the sale takes place. A common example is asking a key contract holder (e.g. such as a supplier that is essential to the business) to agree not to terminate their contract when the company transfers to the buyer. This is called a ‘change of control’ consent.

Once the pre-sale conditions are agreed, the buyer and seller (the parties) sign the agreement, committing them to the sale. They then need to try and fulfil the agreed pre-sale conditions, after which the sale is complete. This is often called a ‘split exchange and completion’. If the specified conditions are not satisfied by a certain date, either party has the right to walk away from the sale. 

Where there is a split exchange and completion, it is common to have provisions requiring:

  • the seller to agree to continue running the business in a way that will maintain its profitability; and
  • a confidentiality obligation requiring each party to keep the sale secret until completion. This provision may detail when and how the parties will announce the sale to the market, any key suppliers, customers or employees.


Once your shares are transferred to the buyer, the sale is complete. The share sale agreement should specify when, where and how completion will take place. This includes describing how each party can correctly transfer the shares and any documentation that the seller must make available to the buyer.

The share sale agreement should also address what happens if completion does not take place at the agreed time. For example, whether:

  • the buyer must pay interest on the purchase price; or
  • the parties can walk away from the sale.

Warranties and Indemnities

Warranties are assurances within the contract from the seller of the business to the buyer.  An incorrect assurance can result in a breach of warranty. For example, as the seller, you might state that your business owns the intellectual property it uses in the business. If this proves to be incorrect, the buyer can claim compensation for any loss it suffers as a result of the breach of warranty. 

An indemnity is a contractual obligation by one party to reimburse the other for any specific liability that arises. They provide the buyer with additional protection. For example, the buyer may be notified of an incident which may result in a claim by an employee against the company. In this instance, the seller can agree to reimburse the buyer on a dollar for dollar basis if the employee brings a claim after completion. 

Limitations on Liability

As the seller, you may be liable if any of the business sale warranties or indemnities are breached. To minimise this liability, the agreement can include limitations. Typical limitations include that:

  • the buyer is only permitted to claim against the seller within a certain time period; and 
  • for a certain amount (usually up to the amount of the purchase price received). 

Seller’s Obligations After the Sale

The agreement should detail how the seller must act after the sale. For example, an important provision is a restraint of trade clause. This prevents the seller from being involved in a competing business for an agreed time period. It also gives the new buyer room to grow the business it has purchased.

Another typical provision is whether the seller must provide any assistance to the buyer after the sale. For instance, whether the seller will continue to work in, or consult to the business. Formalise an ongoing relationship in a separate agreement such as:

Dispute Resolution and Termination

Disputes may arise during or after the sale process. For instance, the parties may disagree on the adjustment amount for the purchase price. To assist in this situation, the share sale agreement should specify a process which must be followed to try and resolve disputes quickly and cost-effectively. 

Similarly, the agreement should specify when the parties may terminate if the dispute resolution process fails. The termination provisions should also address the consequences of termination — whether the parties can just walk away, or whether anyone owes compensation.

Key Takeaways

Entering into a share sale agreement minimises the risks involved in buying or selling shares in a private company. It is important to include key terms in the share sale agreement to protect you and ensure a smooth sale. A good agreement will address every known contingency, giving the parties certainty and ensuring a smooth sale process and continuation of the business being sold. 

If you need a share sale agreement drafted or reviewed, call LegalVision’s corporate lawyers on 1300 544 755 or fill out the form on this page.


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