Should the seller or the buyer draft the Share Purchase Agreement?
In a Canadian share sale, the Share Purchase Agreement (SPA) is the cornerstone document formalizing the transfer of shares, detailing the purchase price, representations and warranties, indemnities, conditions precedent and post-closing obligations. The Letter of Intent (LOI) — typically non-binding except for terms like confidentiality or exclusivity — precedes it and frames the negotiation. In an auction, a pivotal decision is whether the seller's or the buyer's legal counsel drafts these documents, and when.
Why does timing matter? In a well-orchestrated auction, the seller's team introduces a draft SPA through the virtual data room (VDR) before granting exclusivity, when seller leverage is at its peak. Letting the buyer produce the SPA after exclusivity shifts leverage to them.
Advantages of the seller drafting the SPA and LOI
- Control over terms — narrow indemnities, capped representations and warranties, a tax-optimized structure (such as the Lifetime Capital Gains Exemption) and clear timelines
- Streamlined auction — a standard template makes competing bids comparable and sets expectations upfront
- Maximized leverage pre-exclusivity — competitive tension pushes shortlisted suitors to accept the seller's framework
- Time and cost efficiency — addressing tax, employee and environmental issues early reduces revisions and delays
- Canadian-specific optimization — compliance with the Investment Canada Act and Competition Act embedded before leverage shifts
What are the risks of letting the buyer draft post-exclusivity? Loss of control and leverage, broad indemnities, less favourable structures (an asset sale instead of a share sale), inconsistent bids, longer and costlier negotiations, buyer-driven delay and weaker tax outcomes.
When might buyer drafting fit? In a single-buyer, non-auction sale to gauge intent, or where a buyer has unique regulatory or financing needs — provided the seller retains control over key provisions.
Key facts: drafting the SPA in a Canadian share sale
The SPA governs a share sale; the non-binding LOI sets the framework
Best practice: the seller's counsel drafts the SPA and introduces it via the VDR before exclusivity
Seller drafting maximizes leverage, controls terms and optimizes Canadian tax and regulatory outcomes
Buyer drafting post-exclusivity risks broad indemnities, delays and weaker tax results
Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances.
