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Stock purchase agreement (SPA)

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Quick Answer

A stock purchase agreement transfers the equity of the target company, carrying its liabilities with it unless they are specifically allocated back.1,2

What it is

It sets out the price and its adjustment mechanics, the representations and warranties, the indemnification package, the closing conditions, and the covenants between signing and closing. The ABA's Model Stock Purchase Agreement, second edition, is the reference architecture and describes itself as a buyer's reasonable first draft, with commentary after each provision explaining purpose and relevant law.1,2

Operational context

What good looks like

Why It Matters

Which side drafts first decides where the negotiation starts. A buyer in a negotiated one-off starting from the model agreement begins at the pro-buyer end of the range; a bidder in an auction receives seller's counsel's draft, and the model becomes a checklist of what was stripped out rather than a template.1

Frequently Asked Questions

What is Stock purchase agreement (SPA) in venture capital?

It sets out the price and its adjustment mechanics, the representations and warranties, the indemnification package, the closing conditions, and the covenants between signing and closing.

Why is Stock purchase agreement (SPA) important for startups?

Understanding Stock purchase agreement (SPA) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.T2-04 — ABA Business Law SectionModel Stock Purchase Agreement with Commentary, 2d ed. (2011), ISBN 9781604429985, 2 vols., 648 pp.ABA Business Law Section(A stock purchase agreement transfers the equity of the target company, carrying its liabilities with it unless they are specifically allocated back.)primary · T2 · deal-documents · document
  2. 2.T2-04a — Bass, Berry & Sims (host) / ABA (content)MSPA2 Stock Purchase Agreement (publicly hosted agreement text)Bass, Berry & Sims (host) / ABA (content)(A stock purchase agreement transfers the equity of the target company, carrying its liabilities with it unless they are specifically allocated back.)primary · T2 · deal-documents · document
  3. 3.T1-14 — SECSEC EDGAR — filed acquisition agreements (Ex-2.1)SEC(A stock purchase agreement transfers the equity of the target company, carrying its liabilities with it unless they are specifically allocated back.)primary · T1 · deal-documents · document

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