Share Purchase Agreement in Kenya

Share Purchase Agreement in Kenya

What Is a Share Purchase Agreement?

A Share Purchase Agreement (SPA) is a legally binding contract between a buyer and a seller that governs the sale and transfer of shares in a company. Unlike an asset purchase agreement, which involves the purchase of individual assets, a SPA transfers ownership of the company itself, including its assets, liabilities, rights, and obligations.

SPAs are commonly used in mergers and acquisitions (M&A), private equity deals, corporate restructuring, and exit transactions by founders or major shareholders. Essentially, an SPA is the legal foundation of a business sale.

Why Is an SPA Necessary?

The main purpose of an SPA is to:
– Clearly define what is being sold (the shares and any rights attached to them).
– Set out the purchase price and how it will be paid (cash, installments, or adjusted post-closing).
– Allocate risks between buyer and seller through warranties, indemnities, and conditions.
– Establish the timeline and process for completion.

Without a well-drafted SPA, parties face uncertainty, disputes, and exposure to liabilities.

Share Purchase vs. Asset Purchase

When acquiring a business, buyers usually weigh whether to purchase shares or assets.

– Share Purchase Agreement: Buyer acquires the whole company, including liabilities, debts, and contracts. Easier to execute but riskier without thorough due diligence.
– Asset Purchase Agreement: Buyer selects specific assets (e.g., machinery, trademarks, contracts) and avoids unwanted liabilities. However, this may require multiple transfers, consents, and government approvals.

For sellers, share sales often attract capital gains treatment, which can be more tax-efficient than selling assets.

Key Components of a Share Purchase Agreement

An SPA usually contains the following core provisions;

1. Parties and Transaction Details – Identifies the buyer, seller, and target company, the number of shares being transferred, and the agreed consideration.
2. Consideration and Adjustments – Sets out the purchase price, which may be fixed or subject to post-completion adjustments.
3. Conditions Precedent – Outlines approvals or events required before completion (e.g., regulatory approvals).
4. Representations and Warranties – Seller assurances on the company’s legal standing, accounts, and liabilities.
5. Covenants – Obligations placed on parties between signing and completion.
6. Indemnities – Seller compensation for identified risks.
7. Completion – Process for transferring shares, paying the price, and resignations of directors.
8. Confidentiality and Announcements – Restrictions on disclosure of deal terms.
9. Governing Law and Dispute Resolution – Defines applicable law and resolution mechanisms. In most cases, the jurisdiction will be in Kenya.

The SPA Process

1. 1. Pre-Negotiation – Parties define objectives, assemble advisers, and conduct preliminary valuations.
      2. Due Diligence – Buyer reviews financials, contracts, tax compliance, intellectual property, and disputes.
      3. Negotiation and Drafting – Lawyers prepare the SPA, often exchanging multiple drafts before agreement.
      4. Signing and Completion – Once conditions precedent are satisfied, the SPA is signed, money is paid, and shares are transferred.

Common Challenges in SPA Transactions

– Document Control: Multiple drafts and stakeholders create versioning issues.
– Cross-Border Deals: Different legal regimes complicate warranties, tax, and dispute resolution.
– Stakeholder Alignment: Lawyers, accountants, boards, and regulators must all approve key steps.

Best Practices for Managing SPAs

1. Standardized Procedures – Set clear review and approval processes.
   2. Technology Tools – Use contract management systems and virtual data rooms.
   3. Clear Communication – Keep stakeholders aligned through regular updates.

Future Trends in SPAs

– Increased use of warranty and indemnity (W&I) insurance.
– More focus on cybersecurity and data protection warranties.
– AI-driven contract review tools.
– Greater standardization of terms to shorten deal timelines.

A Share Purchase Agreement in Kenya assists in the buying or selling a business through shares. It must be carefully drafted to balance risk, protect both parties, and comply with Kenyan law. Legal teams should pay attention to warranties, indemnities, and conditions precedent.