Stock Purchase Agreement Template: 2026 Free SPA Template With Key Clauses
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Stock Purchase Agreement Template: 2026 Free SPA Template With Key Clauses

Stock Purchase Agreement Template: Free SPA Template With Key Clauses

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A stock purchase agreement template is the reusable starting document buyers and sellers use to transfer ownership of a corporation by selling its issued and outstanding equity rather than its assets. The buyer steps into the seller’s shoes and takes the company with everything in it, contracts, employees, leases, EINs, lawsuits, and tax history. A clean, well-drafted stock purchase agreement (SPA), sometimes called a stock sale agreement or share purchase agreement, allocates the risk on every one of those buckets through definitions, representations and warranties, indemnification baskets and caps, escrow mechanics, working capital adjustments, and closing conditions. The version of the SPA template you start from determines whether your deal closes in 45 days or grinds on for six months. This guide gives you a free, ready-to-edit stock purchase agreement template, walks every clause line by line, flags the negotiated points where buyers and sellers usually fight, and links to the underlying Delaware case law and Internal Revenue Code provisions that drive the drafting choices. The template structure matches the American Bar Association’s Model Stock Purchase Agreement Second Edition published by the ABA Business Law Section in 2010, the most-cited private-company M&A form in the United States.

If you are about to sign one, read the rep and warranty section twice and the indemnification section three times. The 2023 SRS Acquiom M&A Deal Terms Study, analyzing more than 2,100 private-target acquisitions, found that 67% of post-closing claims in private deals are indemnification disputes over breaches of representations rather than working capital fights or earnout disputes (SRS Acquiom 2024 M&A Deal Terms Study). Article III is where your downside lives.

Stock Purchase Agreement Template at a Glance: Quick-Reference Table

Section What It Does Where Buyers and Sellers Fight
Article I: Definitions Defines every capitalized term used in the document “Material Adverse Effect,” “Knowledge,” “Indebtedness,” “Working Capital”
Article II: Purchase and Sale Mechanics of share transfer, purchase price, adjustments Working capital target, cash-free debt-free treatment, escrow size
Article III: Seller Representations Seller’s statements of fact about the company and the shares Scope of business reps, 10b-5 catchall, knowledge qualifiers
Article IV: Buyer Representations Buyer’s statements about authority and financing Financing condition, financing-out, parent guaranty
Article V: Pre-Closing Covenants What seller can and cannot do between signing and closing Operating restrictions, exclusivity, no-shop, antitrust efforts
Article VI: Conditions to Closing What must be true on closing day for either side to walk MAE bring-down, regulatory approvals, third-party consents
Article VII: Indemnification How parties get paid back if reps are breached Caps, baskets, deductibles, survival periods, exclusivity
Article VIII: Termination When and how either party can walk away Outside date, reverse termination fee, fiduciary out
Article IX: Tax Matters 338(h)(10), 336(e), straddle period mechanics Section 338 elections, transfer tax responsibility, tax indemnity
Article X: General Provisions Governing law, notices, expenses, dispute resolution Delaware vs. New York law, fee shifting, jury trial waiver

Download the Free Stock Purchase Agreement Template

The full editable stock purchase agreement template referenced throughout this guide follows the ABA Model SPA Second Edition skeleton and integrates the most common 2024-2026 market-position drafting from the SRS Acquiom and American Bar Association Private Target M&A Deal Points Studies. It is a private-company, cash-deal template structured for a US C-corporation target with a single seller (or sellers acting jointly through a seller representative). It is not a public-company tender offer document, not a merger agreement, and not a securities-law-compliant private placement memorandum. Get a securities lawyer to adapt it to your transaction before you sign.

The template is 38 pages, includes ABA-style block representations, a working capital adjustment, a 10% escrow, 18-month general survival, a 1% basket, and a cap equal to the purchase price for fundamental reps and 15% for general reps. These are starting positions, not final terms. The ABA Business Law Section M&A Committee updates its Private Target Deal Points Study every two years; the 2023 edition (119 deals signed 2022-1H 2023) shows median indemnification caps at 10% of purchase price for general reps and basket at 0.66% (deductible structure).

What This Template Covers and What It Does Not

Covered: a 100% stock sale of a privately held US corporation, single or small group of sellers, all-cash purchase price, customary working capital and indebtedness adjustments, escrow holdback, 18-24 month survival on general reps, Delaware governing law. Not covered: stock-for-stock mergers (use a merger agreement), asset purchases (use an APA), tender offers (use a Schedule TO), foreign-buyer or foreign-target deals (you need cross-border counsel), regulated industries (banking, broker-dealers, insurance, gaming, defense, all add layers), public targets (Schedule 14A and SEC overlay required).

How a Stock Sale Differs From an Asset Sale: Why Template Choice Matters

Buyers usually prefer asset purchases because they get a stepped-up tax basis and can cherry-pick liabilities. Sellers usually prefer stock sales because they get a single capital gain (long-term, 20% federal plus 3.8% net investment income tax under IRC Section 1411) instead of double taxation when a C-corp sells assets and then distributes proceeds. The economic gap can be 15-20 percentage points of after-tax proceeds; a stock sale of a $50 million C-corp returns roughly $36 million net to a founder versus $28-30 million in an asset deal at the same gross price (PwC M&A Tax Insights 2024).

The Section 338(h)(10) election bridges the gap. Under IRC Section 338(h)(10) and Treasury Regulation 1.338(h)(10)-1, a stock sale of an S-corporation or a corporate subsidiary can be treated as an asset sale for federal tax purposes. Buyer gets the asset basis step-up, seller gets the legal simplicity of a stock transfer. The SPA template needs a tax section explicitly addressing whether the parties will make the election, who pays the seller’s incremental tax, and how the gross-up is computed. The Form 8023 election is jointly signed by buyer and seller and filed within 8.5 months of the acquisition date, per IRS Form 8023 Instructions.

If your target is an S-corp with a deep pool of appreciated assets, run the 338(h)(10) math before you negotiate the headline price. The cost-benefit work shows up directly in the SPA tax section. For a wider framework on choosing the deal structure before drafting, the business valuation formula methods guide explains how the purchase price gets backed into from the seller’s net-of-tax target.

Article I: Definitions, and the Six Defined Terms That Move Real Money

Article I looks like boilerplate. It is not. Six defined terms control more economic outcomes than any other section of the SPA.

  1. Material Adverse Effect (MAE). Determines whether the buyer can walk between signing and closing if something bad happens to the target. The Delaware Court of Chancery set the standard in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), the first reported decision finding an actual MAE since the Delaware framework was articulated in IBP, Inc. v. Tyson Foods, Inc., 789 A.2d 14 (Del. Ch. 2001). The carve-outs (industry-wide effects, changes in law, pandemic, war) are heavily negotiated. For a deep dive on the standard and how to draft the carve-outs, see the material adverse effect guide.
  2. Knowledge. Qualifies dozens of reps. “To Seller’s Knowledge” can mean (a) actual knowledge of the CEO and CFO, (b) actual or constructive knowledge of a defined group of officers, or (c) knowledge a reasonable person in that role would have after due inquiry. Each definition shifts roughly 5-10% of post-closing claim exposure. The 2023 ABA Private Target Deal Points Study found 67% of deals use “actual knowledge after due inquiry” with a defined officer group.
  3. Indebtedness. Determines what gets deducted from the headline purchase price to arrive at the equity check. Almost always includes funded debt, capitalized leases (post-ASC 842 operating leases are increasingly included too), accrued interest, prepayment penalties, deferred compensation, change-of-control payments, transaction bonuses, and unpaid taxes. The “definition of indebtedness” fight is where buyers often claw back 2-5% of headline price.
  4. Working Capital. Sets the target the closing balance sheet must hit. Computed as a normalized average (usually trailing 12 months) of current assets minus current liabilities, excluding cash and debt. A $10 million WC target on a $50 million deal means seller delivers $10 million of net current assets at closing. Miss by $1 million, lose $1 million dollar-for-dollar.
  5. Transaction Expenses. Captures M&A advisor fees, legal fees, accounting fees, success bonuses, change-in-control payments, and D&O tail insurance premiums. Definition controls whether they get netted from purchase price or absorbed by seller separately.
  6. Cash. Sounds obvious. It is not. Definition specifies treatment of restricted cash, deposits held by landlords or vendors, foreign-currency balances subject to repatriation taxes, and “trapped cash” inside foreign subs. A $3 million reclassification from cash to working capital component shifts the equity check by $3 million.

Spend two billable-hour days on Article I. It is the cheapest place to add or save real money in the document.

Article II: Purchase and Sale Mechanics, Working Capital Adjustment, and Escrow

Article II walks through the actual transfer mechanics. The seller sells, the buyer buys, the consideration gets wired, and the certificates (or DWAC instructions for book-entry shares) get delivered. The two negotiated levers are the purchase price adjustment mechanism and the escrow.

The Cash-Free, Debt-Free Adjustment

The headline enterprise value gets converted to an equity purchase price using the standard formula: enterprise value plus cash, minus indebtedness, plus or minus working capital adjustment, minus transaction expenses, equals equity purchase price. This is the same bridge that runs in every LBO model on Wall Street, and the SPA codifies it as binding contractual mechanics. The LBO model step-by-step guide walks the math; the SPA is where the math becomes legally enforceable.

Two true-ups happen: an estimated calculation at closing (seller’s estimate, delivered 2-5 business days before closing), and a final calculation 60-120 days post-closing prepared by buyer. The dispute resolution mechanism if buyer and seller disagree is the “Accounting Arbitrator” clause, naming a Big Four firm (other than the firms either party currently uses) as binding arbitrator with a defined scope limited to specific accounting disputes. Costs are usually shared 50-50 or allocated based on which side’s position the arbitrator adopts.

Escrow Size and Duration in Current Market

The 2023 SRS Acquiom Study reports escrow as a percentage of transaction value at a median of 7.5% in 2023, down from 10% pre-2020. Escrow duration medians at 18 months, with a meaningful tail of 12-month and 24-month structures. Representations and warranties insurance (RWI) has displaced traditional escrow in 65% of private deals above $50 million enterprise value as of 2024, per Lockton M&A Insurance 2024 Market Update. When RWI is in place, the escrow shrinks to 0.5%-1.0% of transaction value to backstop the retention (the policy’s deductible, typically 0.5-1.0% of EV).

The SPA template includes both alternatives: a traditional 10% escrow with 18-month survival, and an alternative RWI-overlaid structure with a 0.5% escrow and the RWI policy covering breach claims above the retention.

Article III: Seller Representations and Warranties, the Section That Allocates All the Risk

Article III is the seller’s promise about the company. Every rep is a statement of fact. If the statement turns out to be wrong, the buyer has a claim under Article VII (indemnification). Sellers want narrow reps with broad qualifiers (“knowledge,” “material,” “to the extent listed on Schedule”). Buyers want broad reps with no qualifiers and dollar-for-dollar recovery. The negotiation never ends; the ABA Model SPA presents a buyer-friendly baseline, and the markup reduces it from there.

The standard rep set covers roughly 35 categories. The fundamental reps (almost always uncapped or capped at full purchase price, survive indefinitely or to the statute of limitations) are organization, authority, capitalization, title to shares, and no brokers. The general business reps (capped at 10% of price, 18-24 month survival) cover financial statements (GAAP compliance, fair presentation), absence of changes since the latest balance sheet, litigation, compliance with laws, permits, material contracts, real property, intellectual property, employee benefits (ERISA, 280G concerns flagged in the 280G guide), labor, environmental (CERCLA), insurance, and top customer/supplier relationships. Tax reps and environmental reps run on longer survival periods (3 years to statute of limitations) and indemnification often runs on a separate, longer track.

The “10b-5 rep” or “full disclosure rep” is the catchall that says no rep contains a material misstatement or omission. Sellers hate it; buyers always ask. Per the 2023 ABA Private Target Deal Points Study, only 21% of deals include a full 10b-5 rep, down from 33% in 2019.

Article IV: Buyer Representations, the Financing Out, and the Reverse Termination Fee

Buyer reps are short, usually 4-6 categories: organization and authority, no conflicts, no required consents, sufficient funds, brokers, and (for stock-deal portions) accredited investor status. The fight is in the sufficient funds rep. A no-financing-condition rep means the buyer takes the risk of debt or equity financing falling through. Bulge-bracket strategic buyers usually accept this; PE sponsors prefer to keep a financing condition or a “financing out” tied to a reverse termination fee (RTF). The 2023 ABA Study showed RTFs averaging 5-7% of purchase price in financial-sponsor deals, with examples like the Sycamore Partners $1.5 billion RTF in the Walgreens Boots Alliance deal (WSJ coverage, March 5, 2025). Fund-backed buyers also offer a sponsor equity commitment letter and a limited guaranty capped at the RTF amount, covering the case where the buyer entity (usually a newly-formed shell) lacks assets to pay.

Article V: Pre-Closing Covenants, the No-Shop, and the Operating Restrictions

Between signing and closing, the seller cannot sell to anyone else (no-shop), cannot meaningfully change the business (operating covenants), and must use commercially reasonable efforts to get the deal closed (regulatory cooperation). Buyer covenants are usually limited to financing cooperation and regulatory filings.

The no-shop has narrow exceptions: a “fiduciary out” if a superior proposal arrives, with notice and matching rights to the buyer. Public-company no-shops follow the In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016) framework on disclosure-only settlements. Private no-shops are tighter: typically no fiduciary out, fixed exclusivity period of 30-60 days, with a break fee or expense reimbursement if seller backs out.

Operating covenants restrict the seller from acquisitions, dispositions, capital expenditures above a threshold, dividends, changes in compensation policies, hiring or firing senior employees, settlement of litigation above a threshold, and changes in accounting methods. Each restriction has a dollar threshold (typically $100,000-$500,000 for middle-market deals) and a notice/consent mechanism.

Article VI: Conditions to Closing and the MAE Bring-Down

Article VI lists what must be true on closing day for either party to be obligated to close. Standard conditions:

The MAE bring-down is the most fought condition. The rep is made at signing, then repeated as true at closing, with the MAE standard from Article I as the materiality threshold. The Delaware Akorn decision in 2018, finding a real MAE for the first time after a 17-year drought, gives buyers a roadmap but also signals how high the bar remains: Akorn’s adjusted EBITDA had fallen 86% year-over-year and the company had committed serious regulatory violations. Without that severity, MAE claims rarely succeed.

Article VII: Indemnification, the Cap, the Basket, and the Tipping Bucket

Indemnification is the post-closing remedy mechanism. If a rep was breached at signing or closing, the indemnified party can claim damages. The economics are governed by four levers.

Survival Periods

How long after closing can a claim be brought? The 2023 ABA Private Target Deal Points Study shows:

Rep Category Survival Period (Median) Recent Trend
General business reps 18-24 months Down from 24 months in 2017
Fundamental reps (authority, capitalization, title) Indefinite or statute of limitations Stable
Tax reps Statute of limitations (typically 3-6 years) Stable, driven by IRS audit windows
Environmental reps 3-5 years Stable
Employee benefits / ERISA 3 years or statute Stable
Fraud Indefinite, cannot be capped or shortened Delaware law per ABRY Partners

Delaware fraud carve-outs trace back to ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), where Vice Chancellor Strine held that contractual provisions cannot shield a seller from liability for intentional fraudulent misrepresentation. Every Delaware-governed SPA carves fraud out of survival, cap, and basket limitations.

Caps, Baskets, and Deductibles

The cap is the maximum aggregate dollar amount the indemnifying party will pay. The basket is the threshold the claim must exceed before recovery begins. The deductible is the amount that comes off the top once the basket is crossed (versus a “tipping” basket where the entire claim is recoverable once the threshold is crossed).

For a $50 million deal, the math: cap $5 million on general reps, basket $330,000 deductible, per-claim minimum $50,000. A $1 million breach pays $670,000 (claim minus deductible). Five $40,000 breaches pay zero (each below the per-claim threshold). A $7 million breach pays $5 million (capped). Fraud uncapped.

Representations and Warranties Insurance (RWI)

RWI has reshaped private M&A since 2018. The buyer (usually) pays a one-time premium of 2.5%-4% of the policy limit (which is typically 10% of EV) for a 6-7 year policy that pays out for breaches of seller reps. The seller’s cap shrinks to the retention. Premiums have come down from 4.5% in 2018 to 2.7% in 2024 as carrier capacity expanded; major underwriters include AIG, Beazley, Allianz Trade, Chubb, and Euclid Transactional. Aon Transaction Solutions 2024 Global M&A Insurance Market Report tracks the market quarterly.

RWI changes the negotiation dynamic. Sellers offer broader, less-qualified reps because their exposure caps at the retention. Buyers get a deeper-pocketed counterparty (the insurer) for any breach above the retention. RWI is now in 65%+ of deals above $50 million EV and 80%+ of deals above $250 million EV.

Article IX: Tax Matters, the 338(h)(10) Election, and Transfer Tax Allocation

Article VIII covers termination mechanics: mutual written agreement, outside date passing (6-9 months from signing), material uncured breach, failure of a closing condition, or law prohibiting closing. If buyer terminates for seller breach, buyer may collect expenses or a ticking fee. If seller terminates for buyer financing failure, seller collects the reverse termination fee as exclusive remedy.

The tax section is where the buyer’s preference for asset treatment and the seller’s preference for stock treatment get reconciled. Three core mechanisms:

Section 338(h)(10) Election

For an S-corp or a subsidiary of a consolidated group, buyer and seller can jointly elect to treat the stock sale as a deemed asset sale for federal income tax purposes. Buyer gets stepped-up basis in the assets (allowing immediate deductions for amortizable goodwill under IRC Section 197 over 15 years), seller’s tax bill changes. The SPA tax section commits to making the election and includes a tax gross-up to make the seller economically indifferent (the buyer pays additional consideration to cover the seller’s incremental tax cost vs. a non-elected stock sale). Form 8023 due 8.5 months post-closing.

Section 336(e) Election

For corporate sellers (parent disposing of a subsidiary), IRC Section 336(e) achieves the same result without requiring the buyer to be a corporation. Same gross-up mechanics in the SPA tax section.

Straddle Periods and Tax Indemnity

The closing date almost never falls on a tax year-end. The SPA template includes a straddle period clause defining how income, deductions, and credits get allocated between the pre-closing period (seller’s responsibility) and the post-closing period (buyer’s responsibility). The seller indemnifies the buyer for taxes attributable to pre-closing periods, including taxes that arise from a post-closing audit.

For S-corp sellers contemplating the deal alongside QSBS planning, the tax section needs to align with the holding period and original-issuance requirements under IRC Section 1202. The QSBS Section 1202 guide walks the qualification rules, which can save up to $10 million (or 10x basis, whichever is greater) of federal capital gains tax per shareholder.

Transfer Taxes

State stock transfer taxes (New York imposes one, most states do not) and any documentary stamp taxes get allocated, typically 50-50, between buyer and seller. Real estate transfer taxes on real estate held by the target are typically borne by the buyer because the buyer gets the stepped-up basis.

Article X: General Provisions, the Jury Trial Waiver, and Why It Is Always Delaware Law

General provisions look like boilerplate. Two clauses matter:

Governing law: Delaware in 71% of private deals (2023 ABA Study), New York in 19%, other jurisdictions in 10%. Delaware wins because of the Court of Chancery’s depth of M&A case law, the predictability of outcomes, and the willingness of judges to interpret contracts as written rather than applying expansive equitable doctrines. The Chancery Court’s specialized M&A docket includes judges who hear nothing but business cases, and the average time from filing to trial is 12-18 months, faster than almost any state court system.

Forum selection and jury trial waiver: Exclusive jurisdiction in Delaware Chancery (or New York Supreme Court Commercial Division). Mutual jury trial waivers in all states that permit them (most do). Some SPAs include arbitration clauses; most do not, because the Chancery Court is faster and more predictable than three-arbitrator AAA panels at $1,000+ per hour per arbitrator.

Expenses: Each side bears its own expenses, with a customary carve-out that the prevailing party in any litigation can recover fees and costs (the “fee-shifting” clause; not standard but increasingly common in middle-market deals).

Specific performance: The seller can sue to force the buyer to close (specific performance is the standard equitable remedy in Delaware for M&A), subject to the buyer’s right to terminate and pay the reverse termination fee. The Delaware Court of Chancery has granted specific performance in several recent cases, including the LVMH-Tiffany & Co. dispute that settled in October 2020 after the court signaled it would order closing, and the Snow Phipps Group, LLC v. KCAKE Acquisition, Inc. decision in April 2021, where Vice Chancellor Slights ordered specific performance against a private equity buyer that walked from a $1.2 billion deal (Snow Phipps Group, LLC v. KCAKE Acquisition, Inc., 2021 WL 1714202 (Del. Ch. April 30, 2021)).

Common Drafting Mistakes Buyers and Sellers Make in SPA Templates

Before the mistake list, one structural point worth highlighting: the SPA references Disclosure Schedules (also called the Seller Disclosure Letter) throughout the reps. These documents turn a 40-page SPA into a 400-page deliverable, with each schedule corresponding to a numbered rep (Schedule 3.7 lists material contracts referenced in Section 3.7, and so on). Schedules serve two purposes: they make the reps true, and anything disclosed cannot later form the basis of an indemnification claim. Seller counsel typically spends 60-90 hours preparing schedules on a middle-market deal, and the disclosures often determine post-closing claim outcomes more than the SPA reps themselves (Cooley M&A Insights 2024).

  1. Using an off-the-shelf template without sub-sector customization. A medical device target needs FDA-specific reps; a SaaS target needs subscription-revenue reps; a defense contractor needs DCAA and FAR compliance reps.
  2. Mismatched basket and per-claim thresholds. A $25,000 per-claim threshold with a $500,000 basket means small breaches accumulate but can never cross the basket.
  3. Forgetting to carve fraud out of the cap and the exclusive remedy clause. Under Delaware law per ABRY Partners, intentional fraud cannot be contractually capped. If your SPA does not say “except in the case of Fraud,” your exclusive remedy clause may not be enforceable against fraud claims.
  4. Ambiguous “Knowledge” definition. Failing to define the knowledge group or the diligence standard creates litigation risk.
  5. No definition of Material Adverse Effect. Without a defined MAE, the closing condition becomes unenforceable in practice because the standard reverts to the IBP/Akorn high bar.
  6. Overlooking the 280G golden parachute analysis. Change-of-control payments above the safe harbor trigger 20% excise tax under IRC Section 280G. Without a shareholder vote to cleanse, executives lose 20% of their parachute.
  7. Failing to address R&W insurance interaction. If RWI is in place, indemnification mechanics need to channel claims through the policy. The traditional 10% escrow shrinks to a 0.5% retention escrow.
  8. No subsection on scheduling exceptions. Reps need explicit carve-outs for items disclosed in the Disclosure Schedules.

SPA Negotiation Timeline: From Term Sheet to Closing

Phase Duration Key Activities
Term sheet / LOI 2-4 weeks Headline economics, exclusivity, basic structure
Diligence and SPA drafting 4-8 weeks Buyer counsel sends first SPA draft, seller responds, multiple rounds
Disclosure schedule preparation 3-6 weeks (parallel) Seller counsel coordinates with company team to populate schedules
RWI underwriting (if applicable) 2-3 weeks Underwriter review of diligence, broker calls, policy binding
Final SPA and signing 1-2 weeks Late-night drafting sessions, final markup, signing
HSR waiting period 30 days minimum Standard 30-day waiting period under 15 USC 18a, longer with second request
Other regulatory approvals 30-180 days CFIUS (45-90 days), industry-specific approvals
Pre-closing covenants and consents Parallel Operating covenants in force, third-party consents obtained
Closing 1 day Wires, certificate transfer, payoff letters, closing certificates
Post-closing true-up 60-120 days Working capital final calculation, indemnification claim period begins

Total signing-to-closing on a middle-market deal: typically 90-150 days. Larger deals with significant regulatory complexity (CFIUS, EU antitrust, FTC second request) can take 9-18 months. The 2024 Microsoft-Activision deal took 21 months from signing to closing because of antitrust litigation in multiple jurisdictions, an extreme outlier.

How RWI Insurance Has Reshaped the SPA Template Since 2018

Pre-2018 SPAs used traditional escrow: 10% holdback for 18 months, seller signs broad reps, indemnification is the buyer’s exclusive remedy below the cap. Post-2018, RWI displaced the escrow in deals above $50 million EV. The SPA template now has two structural variants. The traditional variant runs a 10% escrow with 18-month survival, 1% basket deductible, and 10% cap. The RWI variant shrinks the escrow to 0.5% retention, caps seller indemnification at retention plus fundamental reps, and lets the RWI policy cover losses above retention up to 10% of EV. RWI is used in 65%+ of deals above $50 million EV, with buyer paying the premium in 60% of deals.

RWI policies exclude breach of Knowledge reps (the policy does not cover what the seller knew was wrong), exclude pre-closing fraud, and exclude known liabilities. The SPA needs to align rep qualifiers with policy exclusions so the buyer is not left with a gap between SPA recovery and policy coverage. The Aon 2024 RWI claims study reported 22% of policies issued 2018-2022 had at least one claim, with financial statements (33%), tax (20%), and material contracts (15%) the most common claim categories.

SPA vs Merger Agreement, Earnouts, and Rollover Equity Variants

SPAs transfer shares directly from seller to buyer; the target continues to exist with only the shareholders changing. Merger agreements use statutory merger mechanics under Delaware General Corporation Law Section 251 to combine the target with a buyer subsidiary, with the target legally disappearing in a direct merger or surviving in a reverse triangular merger. Use merger structure when the target has too many shareholders to sign individually or when dissenters’ rights are desired. The founder shares guide covers the founder-specific considerations on choosing the structure.

Three variants add complexity to pure cash SPAs. Earnouts make 15-25% of purchase price contingent on post-closing performance over 2-3 years (2023 SRS Acquiom Study); earnout disputes are second only to indemnification claims in post-closing M&A litigation, with Delaware courts repeatedly invoking the implied covenant of good faith and fair dealing as in Fortis Advisors LLC v. Johnson & Johnson, 2024 WL 4711840 (Del. Ch. Nov. 7, 2024). Rollover equity (seller takes back 10-30% in NewCo) qualifies for Section 351 tax-free treatment under IRC Section 351 if structured properly. Stock consideration adds securities-law overlay (Section 4(a)(2) private placement exemption under 15 USC 77d), as in the 2024 Capital One-Discover merger valued at $35.3 billion (Discover Financial Services 8-K filed February 23, 2024).

State-Specific Considerations: Delaware, New York, and California

Delaware governs 71% of private SPAs because of Chancery Court depth on every major SPA term, specific performance availability, and the principle that fraud cannot be contracted away. New York is second at 19%, with New York General Obligations Law Section 5-1401 enforcing choice-of-law provisions for contracts above $250,000 and the Commercial Division specializing in business disputes. California is used when target is California-headquartered, and California’s strong noncompete prohibition under Business & Professions Code Section 16600 limits seller noncompetes; the only enforceable seller noncompete in California is the goodwill-related restriction under Section 16601, tied to the sale of substantially all of the business. The 2024 amendments to Section 16600 (SB 699, effective January 1, 2024) tightened the prohibition further by making out-of-state noncompete enforcement against California residents an unfair business practice.

TLDR: Stock Purchase Agreement Template Key Takeaways

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