What Is a Stock Purchase Agreement (SPA)?
In a stock deal, the buyer purchases the target's equity from its owners, and the company itself continues to exist unchanged, with the same contracts, licenses, employees, and obligations. The SPA documents this transfer in detail: who is selling, how many shares, at what price, and on what conditions the deal will close.
Stock deals are the standard route for acquiring private companies with clean corporate structures, while public company acquisitions achieve the same end result through merger agreements. Sellers generally prefer stock sales because proceeds are usually taxed once at capital gains rates and because the buyer takes the entity with all of its known and unknown liabilities.
Key Provisions of an SPA
The purchase price section defines the headline number and its adjustments, most commonly a cash-free, debt-free construct with a working capital peg that trues up the price at closing. The agreement also specifies the form of consideration and any earnout tied to future performance, along with escrow arrangements that hold back a portion of the price to cover post-closing claims.
Because every liability travels with the shares, buyers rely heavily on the seller's representations and warranties, covering areas from financial statements and taxes to litigation and environmental exposure. If a representation proves false, indemnification provisions let the buyer recover, typically subject to negotiated caps and survival periods of 12 to 24 months, and many deals now use representations and warranties insurance in place of large escrows.
SPA vs. APA and Why It Matters
The core alternative to a stock purchase is an asset purchase, in which the buyer selects specific assets and liabilities rather than taking the whole entity. Stock deals are simpler operationally since contracts and permits usually stay in place, but they deny the buyer the stepped-up tax basis and liability screening that asset deals provide, which is why the two sides often start on opposite ends of the structure question.
For interview preparation, be ready to explain who bears which risks under each structure and why sellers favor stock deals while buyers often push for asset deals. On the job, junior bankers track SPA negotiations closely because the purchase price adjustments and closing mechanics flow directly from the financial analysis they build.
