Stock Purchase Agreement — United States

Overview

A stock purchase agreement (SPA) is the contract under which a shareholder of a corporation sells shares to a buyer, who may be another existing shareholder, the corporation itself (a stock redemption/buyback, which typically has its own additional requirements), or an outside third party. It is governed by the corporate statute of the state where the company is incorporated — Delaware's General Corporation Law (DGCL) is the most common reference point given Delaware's dominant position for venture-backed and larger US corporations, but every state has its own corporate statute and the actual state of incorporation controls, which is not necessarily the state where the company operates or where the shareholders live. When to use it: for the sale of shares in a corporation, whether a small block between individual shareholders, a founder's partial exit, or an outside investor's purchase of existing shares (as distinct from the company issuing new shares directly to an investor, which is a separate transaction structure with its own securities-law and corporate-authorization requirements). Parties: the seller (transferring shareholder), the buyer, and often the corporation itself as a party where its cooperation is needed (for example to record the transfer on its stock ledger, issue a new stock certificate, or confirm compliance with any transfer restriction in its bylaws or a separate shareholders' agreement). Transfer restrictions: unlike some jurisdictions where share-transfer restrictions arise by statute, US corporate law generally leaves transfer restrictions to the corporation's own governing documents — its bylaws, or a separate shareholders' agreement — rather than imposing them by default under the corporate statute itself. Common restrictions include a right of first refusal in favor of the corporation or other shareholders, and a requirement that the board approve transfers to certain categories of buyer. The purchase agreement should confirm compliance with, or waiver of, any such restriction before or at closing, and confirm whether the shares carry any restrictive legend (common for shares that have not been registered under federal securities law and were sold under an exemption, such as Rule 506 of Regulation D). Key clauses: description of the shares being sold (class, series, and number of shares), purchase price and payment terms, representations and warranties by the seller (valid title, free of liens, authority to sell), representations by the buyer (investment intent and, where relevant, accredited-investor status for securities-law purposes), and closing mechanics (delivery of a stock power or endorsed certificate, and the corporation's cooperation in updating its stock ledger and issuing a new certificate). Securities law: the sale of stock, particularly in a private company, can implicate federal and state securities law even in a private, negotiated sale between individuals — restrictions on resale of unregistered securities and any applicable state "blue sky" filing requirements should be confirmed, especially where the buyer is not already a shareholder. Common pitfalls: transferring shares without confirming compliance with the bylaws' or shareholders' agreement's transfer restrictions; overlooking a restrictive legend on the physical or book-entry shares that limits resale; and failing to have the corporation update its stock ledger, which can create disputes about who is the shareholder of record, particularly relevant for voting and dividend rights.

Information to customize

• Corporation's name

• State of incorporation

  Corporate law and share-transfer restriction enforceability are set by the state of incorporation (commonly Delaware).

• Seller's name

• Seller's address

• Buyer's name

• Buyer's address

• Description of shares being sold (class, series, number of shares)

• Purchase price

• Payment terms

• Confirmation of compliance with bylaws/shareholders' agreement transfer restrictions

• Seller representations and warranties

• Closing date

• Date of signature

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Frequently asked questions

Do share transfer restrictions arise automatically under state corporate law?

Generally no. US corporate statutes generally leave transfer restrictions to the corporation's own governing documents — its bylaws or a separate shareholders' agreement — rather than imposing them automatically. The purchase agreement should confirm compliance with whatever restrictions actually apply.

Which state's law governs the sale?

The corporate law of the state where the company is incorporated, most commonly Delaware for venture-backed and larger corporations, but every state has its own statute and the actual state of incorporation controls, regardless of where the shareholders or the company's operations are located.

What is a restrictive legend on stock?

A notation on a stock certificate (or book-entry record) stating that the shares have not been registered under federal securities law and are subject to resale restrictions, common for private company shares sold under an exemption such as Regulation D.

Does the corporation need to be a party to the agreement?

Not always, but it is common where the corporation's cooperation is needed to record the transfer, confirm compliance with transfer restrictions, or issue a new certificate.

Can selling private company stock trigger securities law issues?

Yes, potentially. Even a private, negotiated sale between individuals can implicate federal and state securities law, particularly resale restrictions on unregistered securities and, in some cases, state blue-sky filing requirements.

Does this agreement need to be reviewed by an attorney?

Yes, always. This document affects company ownership with significant financial, tax, and securities-law consequences, and state-specific corporate law review by an attorney licensed in the state of incorporation is essential before signing.

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