Legal AgreementsNBFC

What is Share Purchase Agreement in NBFC?

calendar30 Mar, 2020
timeReading Time: 3 Minutes
Share Purchase Agreement in NBFC

The purpose of the Share purchase agreement in NBFC is as similar to the Share Purchase Agreement, in general, i.e. to bring clarity to the terms and conditions of the sale/purchase of the share which is subject to mutual consent of the parties, i.e. buyer and seller.

In this topic, we will give a brief on the Need for Share Purchase Agreement, what is Share purchase agreement in NBFC, and what are the requisites of the Share Purchase Agreement?

The Need for Share Purchase Agreement – An Overview

A Share Purchase Agreement is a legal agreement between the seller and buyer that constitutes the conditions of purchase of shares. If any Company is buying or selling shares with another company or individual, it is required to use a Share purchase agreement. For instance, if a company has two shareholders who have equal shares and one exit from the company or wants to transfer the shares, a share purchase agreement can be used to buy /transfer his shares to another individual by following the proper NBFC compliances.

What is Share Purchase Agreement in NBFC?

It is a formal agreement executed and signed by the parties affecting the purchase of shares. It is a legal agreement between the buyer and seller at a stated price, i.e. where the seller agrees to sell the shares at a determined price. The primary objective of the Share Purchase agreement in NBFC is to ensure that the covenants related to buying and selling are agreed upon by the parties. Share Agreement in NBFC determines that the agreement is set right by both the seller and the buyer.

Read our article:NBFC Registration: Step by Step Procedure

Requisites for Share Purchase Agreement in NBFC

A share purchase agreement is an agreement that protects the parties’ interest, i.e. the agreement proves that the sale and the covenants of the agreement were agreed upon by the parties.

Below mentioned are the requisites that outline the expectation of the parties-

  • Details of the Buyer.
  • Name of the NBFC.
  • Proper disclosure of the conditions, obligations, and permissions that can be taken by both the parties.
  • It shall include a formal obligation that binds both the parties, i.e. buyer and seller.
  • Warranties to be made by the seller.
  • Purchaser’s right to contract, i.e. Purchaser’s representation and warranties.
  • In case of default on payment from the buyer’s side, there shall be a proper protection policy to protect the interest of the seller.
  • In case, legal disputes arise, proper notice shall be served.
  • In case of any dispute among the parties, Alternate Dispute Mechanism to be used to resolve the dispute.
Alternate Dispute Mechanism refers to the means of settling the disputes of the parties outside the courtroom. It includes negotiation, neutral evaluation in the early phase of the dispute, and through Mediation, conciliation, and arbitration.
  • However, in case failure of Alternate Dispute Mechanism, there shall be a proper disclosure in the Jurisdiction clause of the share purchase agreement, which courts should be approached in case of legal dispute.
  • Share Purchase agreement in NBFC shall be highly confidential and cannot be revealed without the Parties’ consent.
  • Additionally, in the case of share transfer, the process to be used shall be disclosed in the share purchase agreement of NBFC.
  • Disclosure of exercising voting rights.

Apart from the above-mentioned requisites, there are also important key points that are required to be kept in mind at the time of entering into a Share Purchasing Agreement in NBFC-

  • Share Purchase agreement in NBFC must have a binding effect on both parties.
  • The agreement can be modified or amended as per the situation, but only after signing by both parties.
  • Force Majeure clause shall also be included taking into consideration the unpredictable and sudden financial crisis[1].
  • The Share Purchase Agreement in general or in case of NBFC shall be made by taking into consideration the Severability Factor.

Severability means that in case of any event where a part or parts of the agreement be held unenforceable due to any reason, the remaining share purchase agreement shall continue to be in force.


A Share Purchase Agreement is an agreement that establishes a relation between the parties. It covers every detail of the shares that are being purchased, sell or transferred. Single negligence or absence of legally enforceable agreement can result in disputes and litigation. Share Purchase agreement in NBFC ensures that proper due diligence has been done while formulating the covenants and the rights and liabilities of the Parties.

For any documentation, agreement or any stamp duty related query, feel free to contact Corpbiz, our team of experts will guide you about each documentation and agreement to be executed while running your business.

Read our article: Future of NBFCs in India – A Reality Check

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