As globalization accelerates business expansion across geographies, cross-border mergers and acquisitions (M&A) have become an essential strategy for companies seeking market access, technology, intellectual property, or competitive advantage. While the commercial intent behind M&A deals may be global, the legal enforceability and structure of such transactions depend heavily on one key document: the Share Purchase Agreement (SPA).
An SPA is not merely a contract; in cross-border M&A, it is a multijurisdictional playbook—governing not just the transaction mechanics but also regulatory compliance, risk management, tax strategy, and dispute resolution.
What is a Share Purchase Agreement (SPA)?
A Share Purchase Agreement is a definitive legal agreement under which the seller agrees to sell, and the buyer agrees to purchase, a specified number of shares in a target company. In doing so, the buyer acquires ownership and control over the target company, either fully or partially.
In cross-border deals, the SPA must accommodate laws, regulations, tax regimes, and operational practices of two or more countries, which makes its drafting a technically complex and legally sensitive task.
Key Roles of SPA in Cross-Border M&A
- Deal Structuring and Clarity
In cross-border M&A, deal structuring often involves:
- Direct acquisition of shares of a foreign entity
- Indirect acquisition via holding structures or SPVs
- Multilayered ownership structures across tax-friendly jurisdictions (e.g., Singapore, Mauritius)
The SPA defines:
- Nature of shares (equity/preference)
- Purchase price and payment milestones
- Lock-in periods, earn-outs, or deferred consideration
- Seller’s and buyer’s obligations pre- and post-closing
It creates legal clarity in an otherwise complex international commercial relationship.
- Regulatory and FDI Compliance
Cross-border transactions trigger regulatory approvals and compliance in both countries. In India, this includes:
- FEMA and RBI approvals (for inbound or outbound FDI)
- FDI caps and sectoral conditions (e.g., defence, insurance, fintech)
- SEBI guidelines (if listed entities are involved)
- Income Tax Act & DTAA implications
The SPA includes:
- Conditions precedent (CPs) for obtaining regulatory approvals
- Responsibility allocation for filings (e.g., FC-GPR, FLA Return)
- Clauses addressing foreign exchange fluctuations and remittance limits
Without such provisions, parties may inadvertently violate local laws.
- Warranties, Representations & Indemnities
This is the risk allocation heart of the SPA.
In a cross-border setup, the buyer often lacks local insights and relies heavily on representations regarding:
- Target company’s compliance with local laws
- Tax positions
- Material contracts and debts
- IP ownership
- Ongoing litigations
The SPA must ensure:
- Extensive seller warranties (tailored to local laws)
- Indemnification provisions for breach of representations
- Survival clauses (how long warranties remain enforceable)
- Caps and baskets to limit financial exposure
These clauses protect buyers from post-closing surprises.
- Governing Law and Dispute Resolution
In cross-border M&A, parties must agree on:
- Governing law (common: English, Singapore, or New York law)
- Arbitration forum (e.g., ICC, LCIA, SIAC, or Indian Arbitration under the ACA)
- Venue of arbitration (neutral and enforceable)
- Language and enforceability clauses
These ensure that if a dispute arises, it is resolved in a predictable and enforceable manner across borders.
- Tax Planning and Currency Protections
International transactions have significant tax implications:
- Capital gains tax (in India, under Section 9 of the Income Tax Act)
- Withholding tax
- Indirect tax (GST/VAT) if asset transfers are involved
- Transfer pricing regulations
The SPA should specify:
- Who bears the tax (gross-up clauses)
- Tax indemnities
- Repatriation provisions for the seller (especially in exits)
- Currency fluctuation protection (if payments are in foreign currency)
Strategic tax clauses in the SPA can lead to significant savings and prevent double taxation.
- Closing Mechanisms and Post-Closing Protections
Cross-border deals often involve split sign-and-close transactions due to:
- Regulatory delays
- Foreign approvals
- Due diligence timelines
SPA provides mechanisms like:
- Escrow arrangements
- Closing condition satisfaction
- MAC (Material Adverse Change) clauses
- Post-closing covenants like non-compete, non-solicit, employee retention, etc.
This ensures deal integrity from signing to integration.
Indian Legal Context for Cross-Border SPAs
In India, SPAs for cross-border M&A must comply with:
- Companies Act, 2013
- FEMA and associated RBI Master Circulars
- Income Tax Act, 1961
- SEBI (if listed entities are involved)
- Contract Act, 1872 for enforceability
Key RBI Guidelines:
- Pricing guidelines for foreign investment
- Timeline for remittance of consideration
- Reporting requirements (Form FC-GPR, FC-TRS)
Failure to structure the SPA in line with Indian law may result in penalties, disallowance of transactions, or enforcement issues.
Conclusion
A well-drafted Share Purchase Agreement is not just a contract—it’s a risk mitigation and compliance instrument that governs the entire lifecycle of a cross-border M&A deal. As businesses expand beyond borders, the SPA becomes the most critical legal document ensuring transparency, alignment, and enforceability.
In cross-border deals, never “copy-paste” an SPA. It must be customized for jurisdiction, structure, and sector.
Legal Insight: Always involve M&A lawyers from both jurisdictions early in the process. Proper alignment on SPA terms can save millions in future disputes, tax leakages, or enforcement failures.
