In a business or M&A context, SPA stands for Share Purchase Agreement. It is the contract under which a buyer acquires the shares of a corporation from its shareholders, taking ownership of the company along with its assets, contracts, and liabilities. The SPA sets out the price, conditions, representations, and indemnities for the deal.
If you are buying or selling a business in Ontario, the SPA is usually the central document in the file. Almost every other deal document, from the disclosure schedules to the closing agenda, is built around it. This guide explains what the acronym means, defines the key clauses you will see inside a share purchase agreement, and walks through how an SPA differs from an Asset Purchase Agreement (APA) and when each one is used.
What Does SPA Stand For in Business?
In mergers and acquisitions, SPA almost always means Share Purchase Agreement. The acronym gets reused in a few other settings, which is where confusion creeps in.
You may see "SPA" used to mean:
- Share Purchase Agreement, the M&A meaning and the focus of this article.
- Sale and Purchase Agreement, a broader label used in real estate and some asset deals.
- Subscription and Purchase Agreement, used when an investor buys newly issued shares directly from the company rather than from an existing shareholder.
The difference matters. A Share Purchase Agreement transfers existing shares from one or more current shareholders to a buyer. A subscription agreement creates and issues new shares, which dilutes existing owners and raises money for the company. When someone in a deal says "the SPA," in the corporate and M&A world they almost always mean the share purchase agreement.
What Is a Share Purchase Agreement?
A share purchase agreement is a binding contract in which a buyer (the purchaser) acquires the shares of a corporation from its existing shareholders (the vendors). Because the buyer purchases the shares rather than the underlying business, the corporation itself does not change. It keeps its assets, its contracts, its employees, its bank accounts, its tax history, and its liabilities. Only the ownership at the top changes hands.
The parties to a typical Ontario SPA are the vendor or vendors who own the shares, the purchaser, and sometimes the corporation itself and one or more guarantors. Share transfers in Ontario are governed by the corporation's governing statute, usually the Business Corporations Act (Ontario), known as the OBCA, or the Canada Business Corporations Act (CBCA) for federally incorporated companies, together with the company's articles and any shareholders agreement.
That last point is important. Many private corporations have restrictions on transferring shares written into their articles or a unanimous shareholders agreement. Before any SPA can close, those restrictions usually have to be addressed, often through a board resolution approving the transfer and a waiver of any right of first refusal.
Key Defined Terms and Clauses in a Share Purchase Agreement
Most of the negotiation in any M&A deal happens inside a handful of share purchase agreement clauses. Here is what each one does in plain language.
Purchase Price and Adjustments
The purchase price clause sets out what the buyer pays and how. The headline number is rarely the whole story. Common features include:
- Purchase price adjustment. The final price is often tuned after closing based on a working capital target or the company's net debt, so the buyer pays for the business as it actually stands on the closing date.
- Holdback. Part of the price is held back, often in escrow, for a set period to cover any breaches the buyer discovers after closing.
- Earn-out. Part of the price is paid later and depends on the business hitting agreed performance targets. Earn-outs bridge a gap when the buyer and vendor disagree on what the business is worth.
Conditions (Conditions Precedent)
Conditions are the things that must happen before either side is required to close. They are sometimes called conditions precedent or closing conditions. Typical conditions include obtaining third-party consents, receiving regulatory or lender approvals, completing due diligence to the buyer's satisfaction, and confirming that the seller's representations remain accurate at closing. If a condition is not met and is not waived, the party it protects can usually walk away.
Representations and Warranties
Representations and warranties are statements of fact each side makes about itself and, in the vendor's case, about the company. The vendor typically represents that it owns the shares free and clear, that the financial statements are accurate, that the company has paid its taxes, that it owns its key assets, that it complies with applicable law, and that there are no undisclosed liabilities or lawsuits.
These statements are heavily negotiated. A buyer wants them broad and far-reaching. A vendor wants them narrow and qualified by knowledge and materiality. Representations and warranties are the foundation for the indemnity: if one of them turns out to be false, the buyer's remedy usually runs through the indemnity clause.
Covenants
Covenants are promises to do or not do something. Pre-closing covenants govern how the vendor runs the business between signing and closing, for example a promise to keep operating in the ordinary course and not to take on new debt. Post-closing covenants can include a non-competition or non-solicitation promise from the vendor, and cooperation on tax filings.
Indemnities
The indemnity clause is where risk is allocated after closing. If a representation proves false or a covenant is breached, the indemnity tells you who pays, how much, and for how long. Three terms do most of the work:
- Survival period. How long the representations stay "live" after closing. General reps often survive for 12 to 24 months; tax and other fundamental reps usually survive longer.
- Cap. The maximum the vendor can be required to pay under the indemnity, often a percentage of the purchase price.
- Basket (or deductible). A minimum threshold of losses the buyer must absorb before it can claim, which keeps the parties from fighting over small amounts.
These figures are commercial terms set by negotiation, not by statute, so they vary from deal to deal.
Closing and Closing Deliverables
The closing clause sets the time, date, and place of closing and lists what each side must deliver. For the vendor, that typically means signed share transfers, updated share certificates or a confirmation of the electronic register, resignations of directors and officers, corporate minute books, and any required third-party consents. For the buyer, it usually means payment of the purchase price. The closing agenda, a checklist of every deliverable, is the practical roadmap for the day the deal completes.
SPA vs APA: Share Purchase Agreement vs Asset Purchase Agreement
The natural counterpart to the share purchase agreement is the Asset Purchase Agreement, or APA. The difference between an SPA and an APA is one of the first structuring decisions in any business sale, and it changes the tax, the liabilities, and the paperwork.
In a share purchase, the buyer acquires the shares of the corporation. The company carries on exactly as before, just under new ownership. Because the legal entity is unchanged, its liabilities, including unknown or contingent ones, stay with it. The buyer indirectly inherits that history.
In an asset purchase, the buyer acquires selected assets of the business, such as equipment, inventory, goodwill, and contracts, and typically assumes only the liabilities it agrees to take on. The corporate shell, and most of its historical liabilities, stays with the vendor.
| Factor | Share Purchase (SPA) | Asset Purchase (APA) |
|---|---|---|
| What transfers | Shares of the corporation | Selected assets and assumed liabilities |
| Liabilities | Buyer inherits the company's history | Buyer takes only assumed liabilities |
| Third-party consents | Often fewer, but watch change-of-control clauses | Each contract may need assignment and consent |
| Continuity | Company keeps its name, contracts, permits | Contracts and permits may need to be re-papered |
| Typical tax preference | Often favours the vendor | Often favours the buyer |
One Ontario-specific note for asset deals: the Bulk Sales Act (Ontario), which once added a creditor-notice step to asset sales, was repealed in 2017. Asset purchases in Ontario no longer carry that requirement, which simplified the process.
When Each Is Used in Ontario M&A
There is no universally correct structure. The choice between a share deal and an asset deal usually comes down to tax and liability, and the buyer and vendor often start on opposite sides.
Why a vendor often prefers a share sale. An individual selling shares of a qualifying Canadian-controlled private corporation may be able to claim the lifetime capital gains exemption (LCGE), which shelters a large amount of the gain from tax. The LCGE limit for qualified small business corporation shares is $1,250,000 for dispositions in 2025. That potential tax saving is a major reason vendors push for a share structure.
Why a buyer often prefers an asset sale. Buying assets lets the buyer leave unwanted liabilities behind and can allow a "bump" in the tax cost of depreciable assets, generating future deductions. Buyers also like the cleaner liability profile that comes from choosing which obligations to assume.
Two tax provisions tend to surface in Ontario share deals and deserve early advice:
- Section 84.1 of the Income Tax Act is an anti-avoidance rule that can convert what looks like a tax-favoured capital gain into a taxable dividend when shares are sold to a non-arm's-length corporation. It frequently affects intergenerational and related-party transfers.
- Section 116 of the Income Tax Act applies when a non-resident vendor sells shares that are taxable Canadian property. The buyer can be left responsible for withholding tax unless the vendor delivers a clearance certificate, so a section 116 obligation needs to be flagged before closing.
Because the structure drives the tax outcome, the SPA versus APA decision is best made with legal and tax advice early, before a letter of intent locks in a direction.
Related Questions
Is a share purchase agreement legally binding?
Yes. Once both sides sign, a share purchase agreement is a binding contract enforceable under Ontario contract law. Many SPAs are signed first and then close later, with the obligation to complete the deal subject to the conditions in the agreement. Until those conditions are met or waived, closing can still be conditional.
Who prepares the share purchase agreement?
By convention, the buyer's lawyer usually prepares the first draft of the SPA, and the vendor's lawyer reviews and negotiates it. The party preparing the draft tends to start from terms favourable to its client, which is one reason both sides should have their own legal advice rather than sharing a single lawyer.
What is the difference between an SPA and a letter of intent?
A letter of intent (LOI) is a short, mostly non-binding document that records the headline terms and the parties' intention to negotiate a deal. The SPA is the full, binding contract that follows. The LOI often does contain a few binding clauses, such as confidentiality and exclusivity, but the detailed legal terms live in the SPA.
Does a share purchase agreement need a lawyer in Ontario?
There is no law forcing you to use a lawyer, but a share purchase agreement allocates significant financial and legal risk through its representations, indemnities, and tax structuring. Errors in those clauses can be costly and hard to undo after closing. Most buyers and vendors retain a lawyer to draft or review the SPA and to manage the closing.
Sources & Official Resources
Ontario Statutes Cited
Federal Statutes Cited 2. Canada Business Corporations Act, RSC 1985, c C-44 (CBCA) 3. Income Tax Act, Section 84.1 (Non-Arm's-Length Share Sales) 4. Income Tax Act, Section 116 (Disposition by Non-Residents)
CRA Guidance 5. CRA: Capital Gains (T4037), including the Lifetime Capital Gains Exemption 6. CRA: Section 116 Procedures for Non-Resident Dispositions (IC72-17R6)
Helpful Resources 7. Ontario Business Registry
Contact Hadri Law
Whether you are buying or selling a business, the share purchase agreement is where the price, the risk, and the tax structure all come together. Getting the clauses right, and choosing between a share deal and an asset deal, is far easier with advice before you sign rather than after closing. Our team advises Ontario businesses on share sale and asset sale transactions and on the shareholders agreements that often sit behind them.
Hadri Law's founder, Nassira El Hadri (Law Society of Ontario, 2021), advises on M&A and financing transactions, and the firm's corporate team has worked on a substantial volume of asset and share sale deals.
We offer a free initial consultation and serve clients in English, French, Spanish, and Catalan.
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This article is for general information only and does not constitute legal advice. Reading or relying on it does not create a solicitor-client relationship with Hadri Law Professional Corporation.
