A share sale agreement (also called a share purchase agreement, or SPA) is a legally binding contract that records the terms on which one shareholder transfers their shares in a company to a buyer. It sets the price, allocates risk between the parties, and documents the warranties and protections that make the deal enforceable after completion.
- Only companies can do a share sale. Sole traders and partnerships can’t sell shares . They use a business sale or asset sale agreement instead.
- The buyer inherits everything inside the company . Unlike an asset purchase, a share sale transfers the company’s liabilities, tax history, and existing contracts alongside its assets. Due diligence is not optional.
- Check the shareholders agreement and constitution before you sign anything. Most companies have pre-emptive rights or transfer restrictions that must be satisfied before a share sale to a third party can proceed.
- The CGT 50% discount applies if you’ve held shares for 12 months or more. Small business owners may also qualify for additional concessions under Division 152 of the Income Tax Assessment Act 1997 that can reduce CGT to zero.
- Six documents typically need updating after completion. The share transfer form, share certificate, shareholders agreement, accession deed, company constitution, and any directors resolution all need attention at or before settlement.
What is a share sale agreement?
A share sale agreement is the contract that governs the transfer of shares from an existing shareholder (the seller) to a new owner (the buyer). When that transfer completes, the buyer steps into the seller’s shoes as a shareholder, with the same rights and the same exposure to the company’s history.
This last point is the one most buyers underestimate. With a share sale, you’re not just buying the assets you can see. You’re buying the legal entity itself: its tax debts, its pending disputes, its employee entitlements, its lease obligations, and any liabilities that haven’t surfaced yet. That’s why the warranties and due diligence sections of a share sale agreement matter far more than most people expect.
Only businesses structured as registered companies can sell shares. If your business operates as a sole trader or partnership, you’ll need a business sale agreement or asset sale instead.
Share sale vs asset sale: which is right for your situation?
Both structures transfer business value from seller to buyer. The difference is in what exactly transfers and who ends up carrying the historical risk.
| Share sale | Asset sale | |
|---|---|---|
| What transfers | The company itself (including all assets, liabilities, contracts, staff) | Specific assets only (plant, IP, stock, goodwill) |
| Historical liabilities | Buyer inherits them | Remain with the seller’s entity |
| Employees | Employment continues (no change to contracts) | Technically a new engagement; entitlements may need to be paid out |
| Third-party contracts | Usually transfer automatically (check change-of-control clauses) | Usually need to be re-assigned or renegotiated |
| CGT position | Seller pays CGT on share sale profit; small business concessions may apply | Tax treatment varies asset by asset (depreciation, trading stock rules) |
| Stamp duty | Generally nil or minimal on share transfers in most states | Stamp duty may apply on land and business assets |
| Suits | Sellers who want a clean exit; buyers wanting to keep contracts intact | Buyers wanting to cherry-pick assets and leave liabilities behind |
Sellers usually prefer a share sale: it’s cleaner, often has better tax outcomes, and a single transaction covers the whole business. Buyers often prefer an asset sale because they control exactly what they’re taking on. In practice, the negotiation lands wherever the relative bargaining power sits.
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Do you need a share sale agreement in writing?
Yes, and not just for legal compliance. A written share sale agreement is the document that determines who wins a dispute. Without it, both parties are left arguing about what they thought was agreed, which is an expensive way to resolve a transaction.
The agreement creates certainty on things that feel obvious during negotiations but become contested after completion: what was actually warranted about the business, who bears the cost of a liability that emerges six months later, and whether the seller can immediately set up a competing business next door.
A share sale agreement is legally binding when it contains the five elements required under Australian contract law: offer and acceptance, consideration (the payment), certainty of terms, legal capacity of both parties, and intention to create legal relations. Get those elements right and the contract is enforceable. Miss one and it may not be.
What should your share sale agreement cover?
1. Share details and price
State the number of shares being sold, the class of those shares (ordinary, preference, or otherwise), the total purchase price, and how payment is structured. Simple transactions use a fixed cash payment on completion. More complex deals use deferred consideration, where part of the price is paid later based on the business hitting agreed performance metrics, commonly called an earn-out.
If there’s an earn-out, define the metrics precisely. Vague performance milestones are one of the most consistent sources of post-completion disputes Lawpath lawyers see. “Revenue exceeding $1,000,000 in the 12 months following completion” is enforceable. “Continued strong performance” is not.
2. Conditions precedent
Most share sales don’t complete on the day of signing. A conditions precedent clause sets out what must happen before completion can occur. This clause also gives either party the right to walk away if those conditions aren’t met by a deadline.
Common conditions include: board and shareholder approvals (often required by the company constitution), third-party consents for contracts with change-of-control clauses, finance approval for the buyer, release of any security interests registered against the shares, and satisfaction of pre-emptive rights owed to other shareholders.
Skipping this clause is a real risk. A buyer who completes without obtaining required consents may find that key contracts (supplier agreements, property leases, or major client arrangements) have terminated automatically on the change of ownership.
3. Warranties
Warranties are statements of fact the seller makes about the company and its shares. They cover title (the seller actually owns what they’re selling, free of encumbrances), company financials (accounts are accurate and prepared on a consistent basis), tax (all returns lodged, no undisclosed ATO liabilities), employees (all entitlements are current), IP (the company owns its intellectual property), and litigation (no claims pending or threatened).
A seller who gives false or misleading warranties can be sued for damages after completion, even if the inaccuracy wasn’t intentional. For buyers, warranty clauses are the primary legal protection against the company’s hidden history. Always negotiate them. Don’t accept a bare minimum set just because the seller says the business is straightforward.
Most agreements pair warranties with a disclosure letter: a document where the seller carves out known exceptions to the warranties before signing. If the seller discloses something in that letter and the buyer proceeds anyway, the buyer generally can’t later sue for breach of warranty on that issue. Buyers should read the disclosure letter as carefully as the main agreement.
4. Warranty limitations
Sellers will typically try to cap their warranty liability on two fronts: dollar amount (a warranty cap, often set at the purchase price) and in time (a limitation period for bringing claims, commonly 18 to 24 months for general warranties and longer for tax warranties). Buyers often underestimate how much these caps matter until a claim actually arises. Negotiate both before signing.
5. Indemnities
An indemnity is a dollar-for-dollar promise to reimburse the other party for a specific loss. Unlike a warranty claim (where the buyer must prove they suffered a loss), an indemnity triggers automatically when the specified event occurs. Sellers often push back on indemnities; buyers should hold firm on the ones that matter: undisclosed tax liabilities and identified litigation risks being the most common.
6. Title, property and risk
Your agreement should clearly state when title to the shares passes (usually on completion, once the purchase price is paid), when risk passes (typically the same moment), and what happens if something goes wrong between signing and completion. This matters in deals with a gap between signing and completion date, because the buyer doesn’t want to have paid for shares in a company that had a major event in the meantime.
7. Restraint of trade
If you’re buying a substantial share of a business, you don’t want the seller walking out the door and starting a competing business the following week. A restraint clause limits the seller’s ability to compete by industry type, geographic area, and for a defined period.
Australian courts are reluctant to enforce restraints that go further than necessary to protect the buyer’s legitimate business interests. The restraint needs to be reasonable in scope. Too broad and it may be void. Too narrow and it provides no real protection. Getting the drafting right matters, this is not a clause to copy from a generic template.
8. Confidentiality
Commercial-in-confidence information changes hands throughout a share sale: financial records, client lists, supplier terms, and operational know-how. A confidentiality clause protects that information before, during and after the transaction, regardless of whether the deal ultimately completes.
9. Completion mechanics
On completion, the seller delivers signed share transfer forms, the seller’s share certificate, and any documents needed to update the company’s registers. The buyer pays. Both parties execute any ancillary documents (directors resolutions, shareholder accession deeds). Your agreement should set out each step precisely so there’s no confusion on the day.
Before you sign: the checks no one mentions
Read the shareholders agreement and constitution first
Most sellers and buyers go straight to negotiating price. The issue is that the company’s existing governance documents: its constitution and any shareholders agreement, may include rules that affect whether the sale can proceed at all.
Pre-emptive rights are the most common trap. Many shareholders agreements give existing shareholders the right to buy a departing shareholder’s shares first, before any sale to a third party. If you don’t follow that process, the sale may be voidable. A buyer who completes without checking this can end up in a dispute with the remaining shareholders, not just the seller.
Drag-along and tag-along rights are also worth checking if the sale is a partial transfer. Drag-along lets a majority force a minority to sell on the same terms. Tag-along lets a minority shareholder join a sale the majority has agreed to. Both affect how a deal can be structured.
Check for change-of-control clauses in contracts
A consistent pattern in Lawpath consultations: buyers of private company shares discover after completion that a key contract, a property lease, a major supplier agreement, or a government-backed client contract, contained a change-of-control clause. That clause gave the counterparty the right to terminate the contract if ownership of the company changed hands without their consent.
The buyer then faces a choice: renegotiate the contract from scratch (from a weaker position), lose it entirely, or try to unwind the sale. None of those outcomes is good. The fix is straightforward: during due diligence, review all material contracts for change-of-control provisions and obtain the necessary consents before completion, not after.
Do due diligence properly
Due diligence is the buyer’s investigation of the company before agreeing to buy it. In a share sale, this is not optional, it’s the primary way a buyer discovers what they’re actually inheriting. At minimum, your due diligence should cover:
- Financial: audited or reviewed accounts for the last 3 years, current management accounts, any off-balance-sheet liabilities
- Tax: ATO lodgement history, any outstanding assessments or disputes, payroll tax compliance in each state the business operates
- Legal: all material contracts (customers, suppliers, leases), any litigation threatened or pending, IP ownership
- Employment: employee entitlements (long service leave especially), any underpayment risk, contractor classification
- Corporate: ASIC records, share register accuracy, any charges or security interests registered over the shares
A finding in due diligence doesn’t necessarily kill a deal. It gives the buyer the information they need to negotiate a price adjustment, an indemnity, or a specific warranty against the risk they’ve found. Walking in blind and relying on seller warranties alone is how buyers end up in post-completion disputes.
What Lawpath lawyers regularly see go wrong
Across hundreds of share sale consultations every year, the same patterns come up. These are the issues that cause deals to unravel or end in post-completion disputes.
Sellers who don’t check the constitution before announcing the sale. A seller who has committed verbally to a buyer, only to discover the constitution requires board consent or the other shareholders have pre-emptive rights, creates a mess for everyone. Check your governance documents before you start marketing the shares.
Buyers who accept thin warranties. In private company share sales, you have no legal obligation to disclose, the onus is on the buyer to ask the right questions and negotiate the right protections. Sellers often offer bare-minimum warranty sets. Buyers who accept them without negotiating specific warranties around tax, employment, and IP often regret it when an issue surfaces after completion.
No limitation period on tax warranties. General warranty claims are typically limited to 18–24 months post-completion. Tax warranties are different. The ATO can assess a company for up to 4 years after a return is lodged (longer if there’s fraud or serious evasion), so a 2-year cap on tax warranties leaves a significant gap. A well-advised buyer pushes for a tax warranty period that aligns with the ATO’s assessment window.
Earn-out disputes because the metrics weren’t defined precisely. Deferred consideration arrangements look straightforward in heads of terms. In practice, when the measurement period arrives, disagreements about accounting treatment, add-backs, and timing mean the earn-out calculation is contested. Lawyers see this regularly. The fix is specificity at the drafting stage: define the exact metric, the accounting standard, and the calculation methodology in the main agreement.
Capital gains tax on a share sale
When you sell shares at a profit, the difference between your cost base (what you originally paid) and your sale proceeds is a capital gain. The ATO treats shares as CGT assets, so that gain is included in your assessable income for the year.
Two main concessions reduce the CGT bill:
The general 50% CGT discount. If you’ve held the shares for at least 12 months before selling, you can discount the capital gain by 50% before calculating the tax. This applies to individuals and trusts, not companies. If you’ve held shares for less than 12 months, the full gain is taxed at your marginal rate.
Small business CGT concessions. If you’re selling shares in a small business, generally meaning the company has an aggregated annual turnover under $2 million, or the net value of all CGT assets owned by you and connected entities is under $6 million, you may qualify for additional concessions under Division 152 of the Income Tax Assessment Act 1997. These include a 15-year exemption (the entire gain is disregarded if you’ve owned the shares for 15 years and are retiring), a 50% active asset reduction (stacked on top of the general discount), a retirement exemption (up to $500,000 lifetime), and a rollover concession. For eligible sellers, the combined effect can reduce CGT to zero.
The small business CGT concessions have additional eligibility conditions for shares specifically, the company’s assets must pass an active asset test, and you must be a CGT concession stakeholder (generally holding at least 20% of the company). These rules are complex. Get tax advice before you set a sale price, because the tax outcome can affect what price actually makes sense for you.
What other documents do you need to complete a share sale?
The share sale agreement is the main event, but it doesn’t operate alone. Several supporting documents are required to give legal effect to the transfer and update the company’s records properly.
- Share transfer form: The official record of the transfer. Under the Corporations Act 2001 (Cth), this must generally be lodged with ASIC within 28 days of the transfer date.
- Share certificate: Issued to the buyer confirming their updated shareholding. The company’s share register must also be updated.
- Shareholders agreement: If the company has one, it will need to be updated or replaced to reflect the new ownership structure.
- Shareholder accession deed: Where the buyer is joining an existing shareholders agreement rather than replacing one, an accession deed formally adds them as a party.
- Company constitution: The buyer must review this document before completing, it may contain restrictions on transfer or obligations that attach to shareholders.
- Directors resolution: Required if the buyer is becoming a director or if the departing seller was a director. Board changes must be registered with ASIC.
Frequently asked questions about share sale agreements
What is the difference between a share sale agreement and a share purchase agreement?
Nothing material, they are the same document referred to by different names. “Share sale agreement” is written from the seller’s perspective; “share purchase agreement” (SPA) is the same contract from the buyer’s perspective. Both describe the legally binding contract that records the terms of the share transfer.
Does a share sale agreement need to be in writing?
Technically, verbal contracts for share sales can exist under Australian law. In practice, a share sale without a written agreement creates enormous risk for both parties. There is no record of what was agreed on warranties, price adjustments, or risk allocation. Any dispute is then a credibility contest. Always document the transaction in writing.
Can I use a share sale agreement template?
A template is a legitimate starting point. Lawpath offers a Share Purchase Agreement that covers the core commercial terms and is built for Australian private company transactions. For straightforward deals between known parties, a well-drafted template does the job. For transactions involving deferred consideration, complex warranty schedules, or businesses with significant liabilities or third-party contracts, get a lawyer to tailor it to your circumstances, the cost of customisation is small compared to the cost of a post-completion dispute.
Who are the parties to a share sale agreement?
The core parties are the seller (the current shareholder) and the buyer. Where multiple shareholders are selling, all sellers are parties. It is also common for the company itself and any remaining shareholders to be joined as parties to provide company-level warranties, confirming that the information about the company’s financial position, contracts, and compliance is accurate.
What happens to employees when shares are sold?
In a share sale, the legal identity of the employer doesn’t change, the company is still the employer, just with new owners. Employment contracts generally continue on the same terms. Employee entitlements (leave, long service leave) transfer to the buyer’s company automatically. This is one of the practical advantages of a share sale over an asset sale, where employee entitlements typically need to be paid out and re-engaged.
Do I pay stamp duty on a share sale?
Generally no, transfers of shares in Australian private companies are exempt from stamp duty in most states. The exception is where the company holds land-heavy assets (called a “landholder” or “land-rich” company), in which case some states impose duty on the acquisition. If the company owns real property, check your state’s rules before settling on a transaction structure.
Can the seller compete with the buyer after the sale?
Not if the agreement includes a properly drafted restraint of trade clause. Without one, the seller can walk out and start a competing business immediately. With one, the seller is restricted by industry, geography, and time. Courts will enforce reasonable restraints but will not enforce ones that go further than is genuinely needed to protect the buyer’s legitimate interests. Vague or overly broad restraints are regularly struck down.
What is a disclosure letter in a share sale?
A disclosure letter is a document the seller provides alongside the share sale agreement, setting out specific exceptions to the warranties they are giving. For example, if the seller is warranting there are no outstanding ATO disputes but knows of one, they disclose it in the letter. The buyer, having received that disclosure and proceeded anyway, generally cannot later sue on that point. Buyers must read disclosure letters carefully, they are how sellers limit post-completion liability.
How long does a share sale take to complete?
Simple transactions between parties who know each other can complete in a few weeks. Deals involving due diligence, regulatory approvals, or third-party consents typically take 4 to 12 weeks from heads of terms to completion. The most common delays are due diligence findings that require negotiation, slow responses on third-party consents, and finance approval timelines on the buyer’s side.
Share sales involving significant businesses, multiple shareholders, or regulatory complexity can take considerably longer. Factor this into your planning from the start.
Ready to get your share sale agreement in order?
Share sales are one of those transactions where the legal work done upfront determines the outcome months or years later, when something surfaces that no one anticipated. The sellers who walk away cleanly are the ones who disclosed properly, negotiated realistic warranties, and had a well-drafted agreement that allocated risk fairly. The buyers who don’t end up in post-completion disputes are the ones who did their due diligence and negotiated protections that reflected what they found.
Start with our Share Purchase Agreement template, or if your transaction has moving parts that a template won’t cover, speak with a Lawpath lawyer for a fixed-fee quote.
