Share Purchase Agreement

A Share Purchase Agreement in Hong Kong is a binding contract that sets out the terms and conditions under which shares of a company are sold and transferred from one party to another. It identifies the buyer and seller, the number and type of shares involved, and the agreed price. This agreement ensures that both parties understand their rights and obligations and helps mitigate the risk of disputes after the transaction.
In Hong Kong, SPAs are widely used in mergers, acquisitions, and investor transactions involving private limited companies. While not mandatory by law, a written SPA is strongly recommended to safeguard the interests of both parties. The legal framework governing SPAs in Hong Kong can be referenced under the Companies Ordinance (Cap. 622).

A comprehensive Share Purchase Agreement in Hong Kong includes a range of essential clauses that define the structure, obligations, and legal protections of the transaction:

These clauses provide a robust legal foundation and help ensure that the share transaction is carried out fairly and efficiently under Hong Kong business law.

The purchase price in a Share Purchase Agreement in Hong Kong is typically based on a thorough valuation of the company. This valuation may take into account the company’s assets, liabilities, historical earnings, market position, and growth potential. To support a fair and informed purchase, it is standard practice in Hong Kong for the buyer to carry out due diligence before confirming the final price.
To reduce risk and ensure transparency, many SPAs include price adjustment mechanisms. One common method is the completion accounts approach, where the final financial statements are reviewed after the closing to validate the purchase price. Another method is the locked box mechanism, which fixes the price based on a pre-agreed balance sheet date, helping to prevent value leakage between signing and closing. Additionally, some agreements incorporate earn-out clauses, which provide for additional payments to the seller if the company meets certain financial or operational targets post-completion.
These valuation methods and adjustment mechanisms help align expectations and manage post-transaction risks for both parties.Record the board’s approval or due diligence findings properly Download the Minutes of Meeting to ensure your corporate records comply with Hong Kong governance standards.

In Hong Kong, SPAs typically offer flexible payment structures. Common terms include:

All payment terms should be clearly defined in the agreement, including deadlines, methods (bank transfer), and consequences for late payment. For guidance on legal obligations around financial transactions, consult the Hong Kong Monetary Authority.Need authority to sign or execute on someone’s behalf? Download the Power of Attorney to legally delegate representation in your share purchase transaction under Hong Kong law.

While a Share Purchase Agreement is not legally required in Hong Kong, it is a best practice to have one in writing. The Companies Registry does not require a SPA for registration but mandates that companies maintain an accurate shareholder register after any share transfer.
Without a written agreement, there is a higher risk of misunderstanding, unrecorded warranties, or unenforceable terms. A formal SPA protects both the buyer and the seller and serves as clear evidence of the agreed transaction.

Warranties are promises made by the seller about the company and the shares being sold. For example, the seller may warrant that the company has no outstanding litigation or that all corporate taxes have been paid. These statements help the buyer assess risk.

Indemnities offer financial protection if specific risks materialize after the transaction. If a tax debt is discovered or a hidden liability surfaces post-sale, the seller compensates the buyer. These terms are enforceable under Hong Kong contract law when clearly drafted.

Common risks in share purchase transactions in Hong Kong include:

These risks can be mitigated by conducting comprehensive due diligence, clearly defining representations and warranties, and structuring protective clauses in the Share Purchase Agreement Hong Kong.

Hong Kong does not levy capital gains tax, which makes it an attractive jurisdiction for share sales. However, Stamp Duty is applicable on share transfers. As of 2024, the rate is 0.13% on the higher of the consideration paid or the market value of the shares.

Both the buyer and seller typically share this cost equally unless agreed otherwise in the SPA. To finalize the transaction, parties must execute and stamp the instrument of transfer and file it with the Inland Revenue Department. Non-compliance may result in fines or delays.

Closing conditions (also known as Conditions Precedent) are obligations that must be satisfied before the transaction can be completed. In a Hong Kong Share Purchase Agreement, common closing conditions include:

Once all conditions are met, the parties proceed to completion, where the purchase price is paid and the shares are formally transferred. If a condition cannot be fulfilled, the agreement may allow either party to terminate without liability.

For businesses and investors in Hong Kong, a Share Purchase Agreement is a critical legal document that formalizes share ownership transfers, defines payment obligations, and allocates risk. It ensures transparency, supports compliance, and protects both parties from post-sale disputes. If you require assistance in drafting or reviewing your Share Purchase Agreement, Themis Partner offers professionally prepared templates and legal support tailored to Hong Kong law.Download today your Share Purchase Agreement to secure your transaction and ensure full legal compliance in Hong Kong.