A stock purchase agreement is also known as a share purchase agreement, a share sale agreement, or an SPA for short. Regardless of what you choose to call it, an SPA refers to a legal document required to transfer shares from a business to a new buyer. Shares (interchangeable with the word “stocks”) are divisions of the parent company that are owned by different shareholders. The parent company will pay out dividends to shareholders based on the number of shares (i.e. stocks) that they own. These shares can be bought and sold, and individuals or businesses may do so for multiple reasons, for example, to raise money for the company or as an incentive for employees. Whenever such a transaction occurs, a stock purchase agreement is required.
An SPA is a contract between the buyer and seller put in place to protect both parties. It provides information on the buyer, seller, and parent company, along with the number of shares being sold and their value at the time of the sale. Without such a written contract, the sale of stock would not be legally binding. If the sale is not legally binding, this could put the business at substantial financial risk as it opens up the possibility of outside buyers purchasing shares and potential litigation.