How to Structure a Stock Purchase Agreement (Template)

What is a stock purchase agreement?

A stock purchase agreement is a two-party contract that dictates transactions around a company’s shares. According to Avi Moshenberg, partner at Lawson & Moshenberg PLLC, this type of agreement transfers a business’s stock from the company or an existing shareholder (the seller) to a new shareholder (the buyer).

Stock purchase agreements are standard among small corporations; they provide capital while allowing business owners to retain a controlling interest. 

How does a stock purchase agreement work?

Here are some crucial aspects of stock purchase agreements and how they affect your company: 

• Stock purchase agreements affect company ownership. When shares of your company’s stock change hands, your company’s ownership also changes. Someone who sells all their stock to another party no longer has any stake in your company. Conversely, the new buyer gains a stake equal to what the seller previously had (or more if the buyer already owned stock in your company).
• Stock purchase agreements differ from asset purchase agreements. While stock purchase agreements transfer company ownership, asset purchase agreements transfer only specific assets or liabilities. For example, if you sell equipment to another company, you would likely use an asset purchase agreement because ownership of your company would not change. If you sell shares, a stock purchase agreement would apply. “[Asset purchase agreements] can be preferable when buyers want to avoid assuming unknown liabilities, whereas [stock purchase agreements] are often used for clean transitions where the business remains intact under new ownership,” explained Alex Lubyansky, managing partner of Acquisition Stars PLLC.
• Purchasers assume all assets and liabilities. Notably, when buyers purchase shares of your company, they assume all assets and liabilities tied to those shares, even if you don’t disclose them.

Who needs a stock purchase agreement?

Financial regulations require both parties to give written consent for any stock transaction. If you’re preparing to sell stock in your company, you’ll want to have a stock purchase agreement template readily available that you can easily modify to reflect the terms of the sale and the buyer’s information.

Key steps to take before creating a stock purchase agreement

Before you create the stock purchase agreement, you must take several essential steps. 

1. Value the company.

You and your finance team must know your company’s value to determine share prices. There are several ways to value your business. One common method is to take its net profits and apply a multiple, usually between two and 10, depending on the business’s projected growth rate. 

Your valuation will hinge on several factors beyond EBITDA (earnings before interest, taxes, depreciation and amortization), including recurring revenue and revenue growth in the past year. Kris Reddaway, managing director at Citizens Private Wealth, noted that you should also account for goodwill, growth potential and industry benchmarks to avoid undervaluation.

2. Get investor agreement.

After finding investors, you’ll need to show them your company valuation and explain how you arrived at this number. It’s crucial to ensure they understand every aspect of the valuation.

The business owner and the investor must agree on the valuation. If the investor doesn’t agree, a stock purchase won’t happen.

3. Decide on a share price.

Based on your valuation and the percentage of company equity you’re willing to give up, you’ll have two numbers: 

• The amount of money you’re raising 
• What the investor gets for that amount

If you’ve ever seen the show Shark Tank, you’re familiar with this concept. An entrepreneur might say, “I’m asking for $500,000 for 25 percent of the company.” In this example, the total company valuation would be $2 million. 

For the sake of easy math, you may need to issue more shares before your stock sale because you’ll be giving the investor a specific number of shares. That number must equal the investment amount at the agreed-upon valuation.

4. Agree on additional terms.

You and your investor must agree on any additional terms. Some stock purchase agreements are relatively straightforward, while others are more complex. A simple agreement might involve selling voting shares for money. However, you may agree that some or all of the shares you sell will be non-voting, so the investor won’t have a say in how the business is conducted. An investor with more leverage may also insist on having options to buy more shares at specific profit triggers.

5. Have your financial statements ready.

Stock purchase agreements typically include financial information so the investor understands precisely what they’re buying into. Financial information usually includes the following: 

• Revenue
• Debt
• Profit margin
• Tangible business assets (like equipment)
• Intangible assets (like digital assets and intellectual property)

There is also a period of due diligence during which the investor can verify this financial information. To ensure your stock sale goes smoothly, have your financial reports and other relevant documents organized and ready for inspection so the investor can inspect them.

6. Understand key stock purchase agreement provisions.

Once your documents are organized, the next step is to ensure your stock purchase agreement includes all the essential provisions to protect both you and the investor.

Reddaway noted that a well-drafted stock purchase agreement includes key components to protect both the buyer and seller in a transaction. “The goal is to be as comprehensive and clear as possible, … minimizing the risk of future disputes,” Reddaway added.

According to Lubyansky, these may include:

• Purchase price and payment terms: This should specify how much is being paid, when and in what manner (e.g., cash, financing, earnouts).
• Representations and warranties: The seller must affirm that the financials, legal standings and business conditions are accurately presented.
• Indemnification provisions: This outlines who covers any financial losses should misrepresentations or liabilities arise post-sale.
• Covenants and obligations: These may include noncompete clauses, employee transition terms and any required approvals.
• Closing conditions: This section lists any legal, financial and regulatory requirements to be met before the deal is finalized.

How do you create a stock purchase agreement?

Follow these steps to write up a comprehensive stock purchase agreement for your company:

1. Gather key details of the transaction: This information will make up the bulk of your contract. Make sure you have the names of both parties, the type and quantity of shares being sold, the price (both per-share and total transaction) and the payment method and schedule.
2. Write an introduction: Here, you’ll state the purpose of the document, the parties involved, their addresses and the effective date of the agreement.
3. Define ownership, purchase prices and payment terms: Detail the shares being sold and their cost, and note whether this reflects your company’s market value. You should also specify exactly how and when the buyer will pay, including any payment schedules and due dates.
4. Detail representations and warranties for each party: Each side should clearly state that the contract terms are accurate and that all information being shared is correct.
5. Include closing conditions: List any specific actions that need to happen before the deal is finalized, such as settling outstanding lawsuits or securing financing.
6. Add governing law and confidentiality clauses: Governing law clauses specify which state or country’s laws will govern the agreement in the event of a dispute. If sensitive business information is involved, include a confidentiality clause.
7. Sign the document: Both parties must sign the agreement for it to go into effect.

Best practices for a smooth stock transfer process

To ensure a smooth transfer process and terms that protect your interests, follow these best practices:

Minimize risk with the right structuring.

Even the best-planned stock purchase agreements come with inherent risk. Fortunately, there are ways to structure your contract to minimize this risk.

“If valuations are uncertain, an earnout (where part of the purchase price is tied to future performance) can bridge the gap between buyer and seller expectations,” advised Lubyansky.

Reddaway added that other ways to minimize risk include escrow arrangements, staged payments and lock-up periods (which prevent sudden stock dumps).

Share as much information as possible.

While it can be tempting to limit information sharing to get the best possible deal, Moshenberg emphasized that this can lead to issues later on.

“While [avoiding information sharing] might be a benefit in the short term, it can often be a regret in the long term — especially if a party later wishes to sue based on what they insist are misleading representations and inducements that led to the deal,” Moshenberg explained.

Moshenberg added that being open and honest in negotiations results in a more transparent sale and reduces the likelihood of future legal disputes.

Ensure jurisdictional and industry compliance.

Laws and regulations surrounding stock purchase agreements can vary by jurisdiction, so it’s important to ensure your contract considers requirements from both the buyer’s and seller’s sides.

“These may include corporate bylaws, shareholder agreements, right of first refusal (ROFR) obligations, securities laws, tax regulations and anti-money laundering (AML) requirements,” said Reddaway.

In addition to jurisdictional compliance, ensure you meet your industry’s regulatory requirements.

“Certain industries require government approval before stock transfers,” explained Lubyansky. “Failure to get these approvals can void the deal.”

Stock purchase agreement template

Here is a stock purchase agreement template you can copy and paste into a word processing program and save to your company files. This template is intended as a guide only and does not constitute legal advice. Always consult with legal counsel before finalizing legal documents.

I. PARTIES

This Stock Purchase Agreement (“Agreement”) details the terms and conditions of the contractual agreement between the parties below:

Buyer (“Buyer”): [Name, mailing address]

Seller (“Seller”): [Name, mailing address]

II. SHARES

WHEREAS, Seller plans to sell [number] shares of [type] stock, or [number] percent of the outstanding shares belonging to [Your company name] (“Company”), a [State] corporation, and

WHEREAS, Buyer plans to purchase the stock and agrees to the terms and conditions outlined below.

THEREFORE, Buyer and Seller (individually, “Party”; together, “Parties”) agree as follows:

III. PRICE

Seller will sell each individual stock to Buyer for $ [number]. Buyer will thereby pay a total of $ [number] to the Seller. [Optional inclusion: Within [number] days of signing this agreement, Buyer will place a deposit of $ [number] to [Seller].

IV. CLOSING DATE

Upon signing the Agreement, Seller shall commence the transfer of shares to Buyer. The closing of this transaction shall take place on or before [date] (“Closing Date”). On the Closing Date, Buyer shall send money to Seller via [specific money transfer method].

[Optional Clause] V. DUE DILIGENCE

Buyer requires a due diligence period in which Buyer will inspect the finances of Seller and Company. Buyer will have sole discretion over whether the shares are valid for the intended sale, with Buyer’s decision being final and binding for the Parties. Buyer shall deliver the verdict of their due diligence no later than [month and day], 2026, at [time]. Should Buyer choose to terminate this Agreement after performing due diligence, all deposits made shall be returned to Buyer.

VI. REPRESENTATIONS

Seller represents, warrants, and agrees to and with Buyer as follows on the Closing Date.

1. The Company is a legally recognized corporation formed according to the laws of [State];
2. The Company is in good legal standing in [State]; Seller and the Company are not aware of government or third-party proceedings, investigations or claims against the Company;
3. Seller claims full ownership of the shares being sold; Seller holds share titles void of restrictions on transfer, encumbrances or other title defects;
4. Seller is able, by state and federal law as well as Company bylaws, to enter into and carry out the Agreement, including the offer, sale and transfer of shares to Buyer, and has taken all required steps to legally do so;
5. Seller is not a party to any contract regarding the shares being sold;
6. There are no restrictions, other than relevant securities laws, regarding the offer, sale and transfer of the shares.

VII. INDEMNIFICATION

Buyer and Seller agree to indemnify both Parties from and against all claims, liabilities, losses, damages, costs and expenses (including attorney’s fees) arising directly or indirectly from:

1. Failure to execute the obligations established in this Agreement;
2. Inaccuracies or breaches in representations and warranties established in this Agreement; Actions, suits, arbitration, litigation, investigations, proceedings, claims or liabilities that arise as a result of the sale of shares.

VIII. MODIFICATION

No modification will be made to this Agreement unless in writing and signed by the Parties.

IX. ENTIRE AGREEMENT

This agreement comprises the entire agreement of both Parties relating to the subject matter herein and supersedes all prior written and oral agreements, understandings, discussions and negotiations between the Parties.

X. VENUE

This Agreement and the terms herein shall be construed and governed in accordance with the laws of the State of [State]. The Parties irrevocably submit to the jurisdiction of any and all federal and state courts located in [County], [State].

IN WITNESS WHEREOF, both Parties have agreed to this Stock Purchase Agreement electronically or in person by duly authorized officers as of the below day and year.

Buyer’s Signature:

Print Name:

Date:

Seller’s Signature:

Print Name:

Date:

Danielle Fallon-O’Leary contributed to this article.