Understanding share sale agreements is essential for corporate clients navigating the sale of shares in Australian businesses. Investors and entrepreneurs should familiarise themselves with typical provisions found in share sale agreements and be aware of important considerations and best practices in a share sale transaction. Seeking the guidance of an experienced lawyer is crucial in protecting their interests and achieving a mutually beneficial outcome.

What is a Share Sale?

It is important to distinguish between the sale of shares and the sale of a business or its assets. In a share sale, the ownership of a company is transferred by selling the shares held by the existing shareholders. This means that the buyer acquires both the assets and liabilities of the company and takes over the company in its entirety. On the other hand, in a sale of a business or assets, specific assets (plant, equipment, stock, goodwill, etc.) are sold to the buyer who does not assume the legal entity or the historical liabilities of the business. The sale, however, may include the transfer of intellectual property and the assignment of third-party contracts to the buyer.


Before entering negotiations for a share sale, it is good practice for the seller to require a potential buyer to enter a confidentiality (non-disclosure) agreement. This helps to protect any confidential company information that is exchanged during discussions from the unauthorised disclosure by the prospective buyer.

A heads of agreement may also be used. This is a preliminary document prepared before the parties are ready to enter into a final agreement. A heads of agreement can help the parties clarify points of agreement, identify areas for continued negotiation, and provides a reference when it comes to drafting the actual share sale agreement. It is important that any document, including a heads of agreement, be referred to a legal practitioner before it is signed.

Typical Provisions

Typical provisions in a share sale agreement aim to protect the interests of both the buyer and the seller.

The agreement should clearly define the purchase price and consider appropriate payment mechanisms, such as instalment payments, escrow arrangements, or holdbacks, to ensure a smooth and fair transaction. The agreement should include any adjustments or earn-out arrangements based on the future performance of the business.

The seller will usually provide assurances in the share sale agreement regarding the company’s financial condition, assets, and liabilities. Such representations and warranties are critical in establishing the accuracy and completeness of the information provided during the transaction and play a significant role in risk allocation between the parties. In addition, share sale agreements will often include indemnity clauses. These provisions allocate the risk of potential losses arising from specific events, such as undisclosed liabilities or breach of warranties. Limitations of liability provisions establish caps or time limitations on the seller’s liability.

A share sale agreement may also include conditions that need to be fulfilled before the transaction can be completed, such as obtaining necessary regulatory approval or third-party consent. The agreement may outline specific obligations of the parties after completion, such as assisting with the transition, transferring licences or contracts, or handling customer and employee relationships.

Additionally, provisions may be included to restrict the seller from competing with the business, soliciting employees or customers, or disclosing confidential information post-sale. A share sale agreement may also include other post-completion obligations, such as transition assistance and customer or employee notifications, to facilitate a seamless transition of ownership.

Due Diligence

When negotiating share sale arrangements, there are important tips and traps to consider. Most importantly, a buyer should undertake a comprehensive due diligence process to identify any potential risks, liabilities, or issues associated with the business. Thorough due diligence helps inform negotiations and decision making.

It is the responsibility of the buyer to thoroughly review and investigate representations and warranties to ensure they accurately reflect the state of the business and allocate risks appropriately. However, the seller is responsible for providing necessary information and disclosures, ensuring transparency, and minimising the risk of post-transaction disputes.

Seek Professional Assistance

A share sale is typically a complex process and requires thorough preparation and extensive due diligence. An experienced commercial lawyer can guide you through the negotiation and drafting process and ensure your interests are protected and all legal requirements are met. In addition, expert assistance is usually required to understand the tax implications of the transaction. In such cases, buyers should seek professional advice from tax and accounting experts to structure the deal in the most advantageous manner.

Getting your professional team on board at an early stage will help steer negotiations in the right direction, flag missing information or potential issues, and provide sufficient time to carry out due diligence.

This is general information only and you should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please contact us on 02 6181 0277 or email [email protected] or [email protected].