SPA Disputes in Unlisted Joint-Stock Companies: Identifying Key Risks and Protecting the Buyer’s Interests
Share acquisitions in unlisted joint-stock companies involve significant legal and commercial risks. This article examines common SPA disputes and the key considerations for Buyers in legal due diligence, transaction negotiations and SPA drafting, with a focus on contractual risk allocation and investment protection.
Introduction
Share acquisitions in unlisted joint-stock companies (Private M&A transactions) are a common form of investment, particularly for investors seeking to participate in the management and operation of a business or acquire a controlling interest. Unlike the trading of listed shares on a centralized securities market, private share acquisitions are generally implemented through a Share Purchase Agreement (SPA) entered into directly between the Buyer and the selling shareholder(s) (the Seller(s)), or between the Buyer and the target company where the transaction involves a private placement of shares. A transaction may also be structured through a combination of these two mechanisms.
In substance, the subject matter of a share acquisition extends beyond the transfer of a specified number of shares. It also encompasses the rights and economic interests attached to those shares, which are intrinsically linked to the legal, financial and operational condition of the target company. Accordingly, the actual value of an acquisition depends not only on the percentage of shareholding acquired but also on the quality of the target company’s assets, its outstanding liabilities, contingent obligations, business continuity and any legal risks existing at the time of the transaction.
These characteristics expose private M&A transactions to various potential disputes. Disputes may arise at the outset, in connection with ownership of the shares or the authority of the parties to enter into the SPA; during implementation, in relation to payment obligations, satisfaction of closing conditions or registration of the Buyer as a shareholder; or even after Closing, when the Buyer discovers inaccurate disclosures, undisclosed liabilities or legal non-compliance attributable to the period preceding the acquisition.
For the Buyer, one of the principal challenges is that discovering a problem after Closing does not necessarily mean that the Buyer can readily recover its investment or obtain compensation from the Seller. The Buyer’s ability to protect its interests depends substantially on the quality of the pre-transaction legal due diligence, the contractual allocation of risks under the SPA and the ability to establish the relevant breach, loss and causal connection between the breach and the loss suffered.
Against this background, identifying typical disputes and establishing appropriate contractual safeguards during due diligence, negotiations and SPA drafting are essential to protecting the Buyer’s investment. These measures should not be regarded merely as procedural legal requirements, but rather as integral components of the Buyer’s investment risk management strategy.
PART 1. TYPICAL DISPUTES ARISING FROM SHARE PURCHASE AGREEMENTS
1. Disputes concerning share ownership, authority to enter into the transaction and the validity of the SPA
This category of disputes is fundamental because it directly affects the legal feasibility and enforceability of the transaction. The parties may have agreed on the purchase price, shareholding percentage and proposed transfer date, yet the transaction may still be incapable of lawful completion if the Seller does not have the right to dispose of the shares or the individual executing the SPA lacks the requisite authority.
In practice, such risks may arise where the Seller is not the lawful owner of the shares being transferred, the shares have not been fully paid up, or the shares are subject to a pledge, mortgage, attachment, provisional emergency measures or an existing ownership dispute. In certain cases, shares may previously have been transferred to another person, while the company’s internal records have not been updated to reflect the actual ownership position.
In addition to share ownership, the authority of the parties to enter into the transaction requires careful consideration. The person executing the SPA may act as a legal representative, an authorized representative or an individual specifically appointed by the relevant party. However, the identification of an individual as a representative in the SPA does not, by itself, establish that such individual has full authority to enter into the transaction. The absence of necessary internal resolutions, approvals or powers of attorney may give rise to disputes concerning the validity of the agreement and the parties’ respective obligations.
Another important issue is compliance with the share transfer restrictions under the Law on Enterprises and the target company’s Charter. For example, transfers of ordinary shares held by founding shareholders during the statutory restriction period, or transactions requiring approval from the General Meeting of Shareholders, may be affected if the relevant statutory or corporate approval requirements are not satisfied.
Furthermore, the SPA may be challenged under the general provisions of the Civil Code governing invalid civil transactions, including issues relating to the legal capacity of the parties, voluntary consent, or the purpose and contents of the transaction.
For the Buyer, the consequences of these disputes can be particularly serious. If the SPA is declared invalid, the parties may be required to return what they have received and address the legal consequences in accordance with the applicable provisions governing invalid civil transactions. However, the return of the purchase price does not necessarily restore the Buyer to its original financial position or fully compensate for the consequences of the failed investment.
2. Disputes concerning payment obligations and closing conditions
Payment obligations are among the most common sources of disputes during the implementation of an SPA. Disputes frequently arise when the Buyer refuses or delays payment, or seeks an adjustment to the amount payable on the grounds that the Seller has breached its representations and warranties, failed to perform pre-Closing obligations or failed to provide the required closing documents.
Conversely, the Seller may contend that the Buyer has breached its payment obligations notwithstanding that the closing conditions have been satisfied. In such circumstances, the dispute concerns not only whether the Buyer is obliged to pay, but also when the payment obligation becomes due and how it relates to the Seller’s obligation to transfer the shares.
A common underlying cause is the failure to distinguish clearly between the Signing, Pre-Closing and Closing stages. For instance, the SPA may require the Buyer to pay an amount immediately upon execution without specifying whether such amount constitutes a deposit, an advance payment or an instalment of the purchase price. If the transaction subsequently fails to complete, the parties may adopt conflicting interpretations regarding the retention, refund or treatment of the amount already paid.
In addition, the absence of clearly defined closing deliverables, payment milestones and disbursement conditions may create uncertainty regarding the sequence in which the parties must perform their respective obligations.
From the Buyer’s perspective, paying the entire purchase price before the necessary transfer formalities have been completed may create significant exposure. If the Seller subsequently fails to perform its obligations or legal obstacles prevent completion, the Buyer may be required to pursue recovery proceedings or initiate legal action to protect its interests.
3. Disputes concerning the transfer of share ownership and recognition of shareholder status
A distinctive feature of share acquisition transactions is that execution of the SPA does not necessarily mean that all formalities required for the Buyer to be recognized as a shareholder have been completed.
Disputes may arise in connection with the effective time of transfer of share ownership, delivery of share certificates (where applicable), registration of the Buyer’s details in the Shareholder Register and the date from which the Buyer is entitled to exercise shareholder rights in respect of the acquired shares.
For example, the Buyer may have paid the entire purchase price, while the Seller or the target company has not completed the update of the Shareholder Register. In such circumstances, the Buyer may encounter difficulties in exercising voting rights, receiving dividends or exercising other rights attached to shareholder status. Conversely, the Seller may argue that the transfer obligation has been fulfilled because the SPA and relevant transfer documents have already been executed.
Another potential dispute concerns the allocation of dividends or the economic consequences of corporate resolutions adopted during the period between Signing and the date on which the Buyer is formally registered as a shareholder.
For transactions intended to acquire control, these issues are particularly significant because delays in updating the shareholder records may affect the Buyer’s plans to restructure the Board of Directors, appoint management personnel and implement its post-acquisition business strategy.
4. Disputes concerning disclosure, representations and warranties provided by the Seller
This category of disputes is particularly complex, especially in high-value transactions or acquisitions intended to give the Buyer control over the target company.
Unlike an ordinary asset acquisition, the Buyer of shares does not directly become the owner of the target company’s assets. Instead, the Buyer becomes a shareholder and acquires the economic interests associated with the company’s business and financial condition. Accordingly, information provided by the Seller before the transaction may directly influence the Buyer’s investment decision, valuation and assessment of the risks being assumed.
Disputes commonly arise where the Buyer discovers that the actual condition of the target company materially differs from the information disclosed during the transaction or from the representations and warranties given under the SPA.
Typical issues include:
- Financial statements that do not fairly and accurately reflect the company’s financial position, assets or business performance.
- Undisclosed loans, payables or other financial obligations.
- Existing disputes, claims, litigation or contingent liabilities that have not been disclosed.
- Violations of laws and regulations relating to taxation, employment, social insurance, land, construction, environmental protection or business licensing.
- Material assets that are not legally owned or used by the company, or that are subject to third-party claims or disputes.
- Related-party transactions that have not been adequately disclosed.
- Inaccurate information concerning the number of shares, ownership percentages or legal status of the shares being transferred.
A significant difficulty in these disputes is determining the Seller’s liability when inaccurate or incomplete information is discovered after Closing. The Seller may argue that the relevant information was disclosed during the due diligence process, that the Buyer had an opportunity to review the relevant documents, or that the discovered issue falls outside the scope of the representations and warranties.
The Buyer, on the other hand, may contend that the disclosure was incomplete, unclear or failed to reflect the true nature of the relevant matter, thereby causing the Buyer to make its investment decision on an inaccurate factual basis.
Accordingly, these disputes are not limited to whether the information was accurate. They also involve the scope of the representations and warranties, the effect of disclosed exceptions, the burden of proving loss and the indemnification mechanisms stipulated in the SPA.
5. Disputes concerning post-Closing purchase price adjustments
In more complex M&A transactions, the purchase price is not necessarily fixed at the date of execution of the SPA. The parties may agree on a provisional purchase price based on financial statements as of a specified date, with a subsequent adjustment following Closing based on the target company’s actual financial position.
This mechanism is commonly implemented through Completion Accounts, under which the purchase price may be adjusted by reference to cash, financial indebtedness and working capital as at Closing.
In practice, disputes frequently arise because the parties adopt different approaches to calculating working capital, determining which financial liabilities should be included in the purchase price, assessing the recoverability of receivables or accounting for outstanding tax liabilities and expenses.
Another issue may arise where the Buyer discovers that the Seller has withdrawn cash, distributed value or transferred assets out of the target company during the pre-Closing period in breach of the agreed ordinary-course business obligations or restrictions on unusual transactions.
These disagreements may become particularly complex where the SPA sets out only general principles for purchase price adjustments without providing detailed accounting schedules, calculation methodologies or a specific dispute resolution procedure.
6. Disputes concerning pre-Closing and post-Closing obligations
In many transactions, execution of the SPA and completion of the share transfer do not take place simultaneously. The period between Signing and Closing is generally used to satisfy Conditions Precedent, obtain regulatory or third-party approvals and prepare the relevant transfer documentation.
During this period, the Seller may continue to exercise substantial influence over the operations of the target company. Accordingly, the SPA may impose obligations to maintain the business in the ordinary course, refrain from entering into unusual related-party transactions, avoid issuing additional shares, refrain from incurring indebtedness beyond agreed thresholds or refrain from disposing of material assets without the Buyer’s consent.
Disputes may arise where the Buyer considers that the Seller has taken actions that materially alter the condition of the target company, while the Seller maintains that such actions fall within the scope of ordinary business operations.
Following Closing, disagreements may continue in relation to the delivery of corporate records and documents, management assistance, tax finalization, the handling of disputes arising from pre-Closing circumstances or the implementation of purchase price adjustments.
If the SPA does not clearly define the scope, duration and content of these obligations, the Buyer may encounter difficulties in assuming effective control and addressing outstanding matters within the target company.
7. Disputes concerning contractual penalties, damages, default interest and termination of the SPA
These disputes typically arise after a contractual breach has occurred and one or more parties seek to enforce their rights or obtain compensation.
Disagreements may concern whether a particular breach gives rise to contractual penalties, which losses are recoverable, how default interest should be calculated, when an indemnification payment becomes due and the extent of each party’s liability.
A notable scenario occurs when the Buyer seeks compensation from the Seller for losses arising from legal violations attributable to the period before Closing, while the Seller argues that such losses fall outside the agreed scope of liability or were excluded through the disclosure process.
Termination of the SPA may also become contentious where the parties disagree on the applicable termination events, the right to terminate unilaterally or the legal consequences for amounts already paid and obligations that remain outstanding.
For the Buyer, an inadequately drafted SPA may result in indemnification rights that exist in principle but are difficult to enforce in practice due to insufficient provisions governing liability, notification procedures or the calculation of damages.
PART 2. KEY CONSIDERATIONS FOR THE BUYER IN LEGAL DUE DILIGENCE, NEGOTIATION AND DRAFTING OF THE SPA
Preventing disputes in share acquisition transactions requires a coordinated approach from the initial investment preparation stage. For the Buyer, legal due diligence should not be limited to reviewing documents and preparing a report identifying legal issues. More importantly, its findings should form the basis for assessing the feasibility of the transaction, determining acceptable levels of risk and establishing appropriate contractual risk allocation mechanisms in the SPA.
1. Conducting due diligence on the Seller and ownership of the shares
This issue should be prioritized because lawful ownership of the shares is a fundamental prerequisite for the Buyer to acquire valid shareholder rights.
The review should extend beyond checking whether the Seller’s name appears in the Shareholder Register. It should cover the complete set of documents evidencing the origin and legal status of the shares.
Relevant documents may include the Shareholder Register, share certificates (where applicable), capital contribution and share payment records, previous share transfer agreements, agreements relating to the shares and documents evidencing the Seller’s authority to dispose of them.
The review should also establish whether the shares have been fully paid up, whether they are subject to any pledge, mortgage, attachment or provisional emergency measures, and whether any third party has rights or interests attached to the shares being transferred.
For ordinary shares held by founding shareholders, particular attention should be paid to the transfer restrictions during the statutory period under Article 120.3 of the Law on Enterprises and any approval requirements of the General Meeting of Shareholders where prescribed by law.
In addition, the Buyer should examine the legal status and authority of each Seller to execute the SPA. Where the Seller is an organization, the review should cover internal corporate approvals, the authority of its legal representative and any restrictions affecting its ability to dispose of the shares.
The findings should be reflected in specific representations and warranties concerning share ownership, Conditions Precedent relating to the release of security interests or completion of internal approvals, and specific indemnification obligations in the event that the Seller’s ownership rights are not legally established.
2. Reviewing the Charter, corporate governance records and shareholders’ agreements
A share transfer may be subject simultaneously to the Law on Enterprises, the target company’s Charter and contractual arrangements between shareholders.
Accordingly, the due diligence process should include the current Charter and all amendments, the Shareholder Register, resolutions and minutes of the General Meeting of Shareholders, Board of Directors’ resolutions and any shareholders’ agreements.
Particular attention should be given to rights of first refusal, tag-along rights, drag-along rights, buy-back rights and other contractual restrictions on share transfers.
An important distinction must be drawn between statutory restrictions on share transfers and contractual restrictions agreed between shareholders. These restrictions may have different legal effects and consequences. For example, a breach of a shareholders’ agreement concerning a right of first refusal does not automatically render the SPA invalid against all parties. The enforceability of the relevant agreement, the parties bound by it and the legal consequences of the breach must be assessed on a case-by-case basis.
For the Buyer, this review should establish whether the transaction requires approval from other shareholders, whether any pre-emption or transfer rights may be triggered and whether the transfer could affect existing governance or economic rights.
These findings also provide the basis for determining the Conditions Precedent and designing appropriate contractual mechanisms to address any failure by shareholders or relevant parties to cooperate.
3. Conducting comprehensive legal due diligence on the target company
In a share acquisition, the Buyer acquires not only ownership of shares but also the economic interests associated with the target company’s business and operations. The scope of legal due diligence should therefore be tailored to the size, business sector and level of control that the Buyer intends to acquire.
Key areas of review generally include:
- Corporate and governance matters: Enterprise registration status, business lines, shareholder structure, governance structure and compliance with applicable corporate requirements.
- Licences and business conditions: Required licences, operating conditions and the continued validity of licences following changes in shareholding.
- Assets and property rights: Ownership and use rights relating to land, buildings, intellectual property and other material assets used in the business.
- Financial obligations: Loans, guarantees, payment obligations, security interests, payables and contingent financial liabilities.
- Tax, employment and social insurance: Tax declarations and payments, employment arrangements, social insurance contributions and related statutory obligations.
- Litigation and regulatory compliance: Existing lawsuits, claims, administrative sanctions, regulatory breaches and potential disputes.
- Material contracts and related-party transactions: Material commercial agreements, long-term obligations, intra-group arrangements and Change of Control provisions.
- Land, construction and environmental matters: Lawfulness of land use, construction works, relevant permits and environmental compliance.
Where the Buyer is a foreign investor, the due diligence scope should additionally cover market access conditions, foreign ownership restrictions and the investment registration procedures applicable to the acquisition under the investment laws in force at the relevant time, including transactions falling within the scope of Article 26 of the Law on Investment 2020 and its relevant amendments and implementing regulations.
Importantly, due diligence findings should be translated into appropriate contractual solutions. An undisclosed liability may justify a purchase price adjustment or a specific representation and warranty. A licence that may no longer satisfy applicable conditions following the transaction may become a Condition Precedent. A tax liability attributable to the pre-Closing period may be addressed through a specific indemnity.
If identified issues are merely recorded in the due diligence report without being reflected in the SPA, the Buyer may lose an important opportunity to establish a contractual basis for holding the Seller accountable.
4. Clearly identifying the subject matter of the transfer, ownership percentage and capital structure
The SPA should provide a complete description of the shares being transferred, including the name and enterprise registration number of the target company, class and number of shares, par value, purchase price per share, aggregate purchase price and expected post-transaction ownership percentage.
For Buyers seeking to acquire control, the basis for calculating the ownership percentage requires particular attention. A specified percentage may be calculated by reference to the total issued shares, total voting shares or on a fully diluted basis. These approaches may produce different results where the company has issued or plans to issue preference shares, convertible shares or other instruments capable of changing its capital structure.
Accordingly, the SPA should include a capitalization table showing the company’s capital structure before and after the transaction and clearly specify the basis for calculating the ownership percentage, voting rights and economic rights attached to the transferred shares.
Accurate identification of the subject matter of the transaction also helps prevent disputes regarding whether the Buyer has actually received the number of shares and ownership percentage agreed under the SPA.
5. Structuring payment arrangements in coordination with completion of the share transfer
From the Buyer’s perspective, payment arrangements should be structured to minimize the gap between the payment date and the date on which the Buyer legally acquires ownership of the shares.
Rather than requiring payment of the entire purchase price upon Signing, the parties may allocate their respective obligations across several stages:
- Signing: The parties execute the SPA and the Buyer pays a deposit or initial payment in accordance with the agreed terms.
- Pre-Closing: The parties satisfy the Conditions Precedent, prepare the necessary documents and complete the required procedures.
- Closing: The Seller executes the transfer documents and delivers the agreed documentation; the parties coordinate the update of the Shareholder Register and the Buyer pays the relevant portion of the purchase price in accordance with the agreed mechanism.
- Post-Closing: The Seller continues to perform its assistance, indemnification and other post-completion obligations, while any retained amount is released upon satisfaction of the agreed conditions.
In certain transactions, an escrow arrangement may provide an appropriate mechanism for securing the Seller’s obligations. For example, 90% of the purchase price may be paid at Closing, with the remaining 10% retained for 12 months to secure the Seller’s indemnification obligations.
The SPA should clearly specify the escrow agent, release conditions, circumstances permitting deductions, procedures for submitting claims, applicable response periods and the treatment of any remaining balance upon expiry of the relevant security period.
Another issue requiring clarification is the legal nature of any initial payment. The SPA should distinguish between a deposit under Article 328 of the Civil Code and an advance payment of the purchase price. Merely using the terms “Deposit” or “Advance Payment” without defining their legal nature, purpose and consequences in the event of non-completion may lead to disputes.
6. Developing an appropriate framework of representations and warranties
Representations and warranties (R&W) are among the most important contractual tools available to the Buyer for managing disclosure risks in an M&A transaction.
The R&W framework should generally cover two principal categories.
First, representations and warranties relating to the Seller and the transferred shares.
These may include the Seller’s legal capacity and authority to execute the SPA; lawful ownership of the shares; full payment of the shares; the absence of pledges, mortgages, attachments or disputes; compliance with applicable transfer restrictions; and completion of all necessary internal approvals.
Second, representations and warranties relating to the target company.
These may cover the accuracy and fairness of the financial statements; tax compliance; outstanding liabilities and contingent obligations; business licences; litigation; ownership and lawful use of material assets; regulatory compliance; and related-party transactions.
For the Buyer, the R&W framework should not simply consist of a standard list of warranties applied uniformly to every transaction. Its contents should be tailored to the specific issues identified during due diligence, the materiality of each risk and the Seller’s ability to control the target company.
The SPA should also specify when the representations and warranties are made, when they must remain accurate and how the parties will address any representation or warranty that becomes inaccurate at Closing.
7. Establishing specific indemnification mechanisms and limitations of the Seller’s liability
Representations and warranties can provide meaningful protection only when supported by an enforceable liability and indemnification framework.
The indemnification provisions should clearly define the categories of losses recoverable by the Buyer. These may include actual losses, fines and late payment interest arising from pre-Closing breaches, reasonable legal and expert fees, third-party payment obligations and other losses agreed by the parties in accordance with applicable law.
In addition to the scope of indemnification, liability limitations are important matters requiring careful negotiation. Common contractual mechanisms include:
- De minimis: A minimum threshold applicable to each individual indemnification claim.
- Basket: An aggregate threshold of losses that must be reached before indemnification liability arises.
- Cap: The maximum aggregate liability of the Seller.
- Survival Period: The period during which representations and warranties remain actionable.
- Carve-outs: Circumstances in which liability limitations do not apply, such as fraud or breaches of representations concerning ownership of the shares.
From the Buyer’s perspective, these limitations should be negotiated by reference to the transaction value, risk profile, the Seller’s financial capacity and the nature of each representation and warranty. Applying a single liability cap to all categories of breach may be inappropriate, particularly where certain breaches could result in substantial losses.
The claims procedure should also specify notification deadlines, the required contents of a claim notice, supporting evidence, the Seller’s right to participate in the handling of third-party claims and the deadline for payment of indemnification amounts.
A further consideration is the Buyer’s right to set off indemnification claims against any outstanding purchase price. Such a right should not be drafted too broadly. Set-off should generally be linked to amounts that have been acknowledged, agreed by the parties or determined by an effective judgment or arbitral award, unless the parties separately agree on a retention or escrow mechanism for disputed amounts.
8. Defining Conditions Precedent and obligations between Signing and Closing
Conditions Precedent are an important mechanism to ensure that the Buyer is not required to complete the transaction before essential legal or commercial requirements have been satisfied.
Such conditions may include approval of the transaction by the General Meeting of Shareholders or another competent corporate body where required by law or the Charter; release of security interests over the transferred shares; completion of necessary investment procedures by the Buyer; receipt of third-party consents; continued accuracy of the representations and warranties at Closing; and the absence of a Material Adverse Change (MAC), where agreed by the parties.
To minimize disputes, each Condition Precedent should be specifically described, objectively verifiable and accompanied by clear provisions identifying the responsible party, the deadline for satisfaction and the consequences of non-fulfilment.
In parallel, the SPA should establish an appropriate framework for regulating the target company’s operations between Signing and Closing. Typical obligations include maintaining the business in the ordinary course; refraining from issuing additional shares or convertible securities; avoiding extraordinary dividend distributions; refraining from disposing of material assets; avoiding indebtedness or guarantees exceeding agreed thresholds; refraining from unusual related-party transactions; and not amending the Charter or changing the governance structure without the Buyer’s consent.
However, these restrictions should be tailored to the target company’s actual business operations. Exceptions for ordinary-course business activities and approval thresholds should be clearly defined to prevent the contractual restrictions from unnecessarily interfering with the lawful operation of the business.
9. Defining post-Closing obligations and purchase price adjustment mechanisms
Completion of the share transfer does not necessarily terminate all obligations between the parties. In many transactions, the Buyer continues to require the Seller’s cooperation in assuming management responsibilities and addressing matters originating before Closing.
Accordingly, the SPA should specify obligations relating to the delivery of corporate, financial and governance records; assistance with changes to the legal representative; handover of corporate seals, digital signatures, accounts and records in accordance with applicable law; assistance with audits and tax finalization; confidentiality; assistance in handling disputes originating before Closing; and implementation of purchase price adjustments.
Any non-compete obligations should clearly define the restricted activities, geographical scope, duration and legitimate interests being protected, while avoiding unnecessarily broad or excessive restrictions.
Where a Completion Accounts mechanism is adopted, the SPA should include detailed accounting schedules specifying the reference date, applicable accounting standards, calculation methods for cash, financial indebtedness and working capital, treatment of doubtful receivables and tax liabilities. The order of priority between accounting policies specifically agreed under the SPA and generally applicable accounting standards should also be clarified.
In particular, an Independent Expert Determination mechanism may be established to resolve technical accounting disagreements, thereby reducing the need to refer every purchase price adjustment dispute to a court or arbitral tribunal.
10. Structuring termination provisions and the consequences of termination
The Buyer should pay particular attention to its termination rights in circumstances where the transaction cannot be completed or the Seller breaches material contractual obligations.
The SPA may provide for termination events including a material breach that remains uncured within the applicable cure period; failure to satisfy Conditions Precedent by the Long-stop Date; refusal by a competent authority to approve the transaction; a party’s inability to perform its obligations; or mutual agreement between the parties.
However, termination rights are only one aspect of the contractual protection framework. The SPA should also clearly establish the legal consequences of termination, particularly the refund of amounts already paid, treatment of deposits, contractual penalties and damages.
In addition, the parties should identify which provisions survive termination, including confidentiality, dispute resolution and liability for breaches occurring before termination.
Clear termination provisions enable the Buyer to avoid being trapped in a transaction that can no longer be completed and provide a contractual basis for addressing any resulting losses.
11. Selecting an appropriate dispute resolution mechanism
The dispute resolution clause should be treated as a material provision of the SPA rather than a standard formality at the end of the agreement.
The parties should determine the governing law, negotiation mechanism, negotiation period, possibility of mediation, competent court or arbitral institution, seat of dispute resolution, language of proceedings and number of arbitrators where arbitration is selected.
In M&A transactions, the choice between court litigation and arbitration should be assessed by reference to the number of parties involved, the nature of potential disputes, confidentiality requirements, the availability of interim relief and the enforceability of the resulting judgment or arbitral award.
Where arbitration is selected, the SPA should expressly identify the arbitral institution and applicable arbitration rules. General wording such as “disputes shall be resolved by competent arbitration” may create uncertainty regarding the dispute resolution mechanism precisely when a dispute arises.
Another issue requiring attention is the relationship between the SPA, the target company’s Charter, shareholders’ agreements and the rights of shareholders who are not parties to the transaction. An arbitration agreement contained in the SPA does not automatically resolve every dispute involving the target company or persons who are not bound by that arbitration agreement.
Accordingly, the dispute resolution mechanism should be designed consistently with the transaction structure and the other relevant legal documents.
Conclusion
A share acquisition in an unlisted joint-stock company is not merely a transfer of ownership of a specified number of shares. It is also an acquisition of the rights, economic interests and legal risks associated with the entire business and operations of the target company. A well-drafted SPA should therefore accurately reflect the substance of the transaction, clearly allocate the parties’ obligations and establish risk allocation mechanisms that are practically enforceable.
For the Buyer, legal due diligence should form the basis of the investment decision and negotiation strategy, rather than being treated merely as a document review exercise before signing. Identified risks should be translated into appropriate contractual protections, including Conditions Precedent, purchase price adjustments, representations and warranties, indemnification obligations and purchase price retention mechanisms.
Furthermore, provisions concerning payment, Closing, purchase price adjustments, pre- and post-Closing obligations, termination and dispute resolution should be drafted as a coherent contractual framework. Focusing exclusively on the purchase price and ownership percentage while overlooking these matters may expose the Buyer to substantial losses after completion.
In this context, the involvement of experienced M&A legal counsel from the initial due diligence and SPA negotiation stages plays an important role in identifying legal risks, assessing transaction feasibility and protecting the Buyer’s interests. Where disputes arise, a proper assessment of the nature of the breach, the legal basis for indemnification and the applicable dispute resolution mechanism is equally important to safeguarding the Buyer’s investment.
BFSC Law provides legal services to Buyers in share acquisition transactions involving unlisted joint-stock companies, including legal due diligence on the Seller and target company, transaction structuring, negotiation support, drafting and reviewing Share Purchase Agreements (SPAs), as well as legal advice and representation in disputes arising from share purchase agreements.
Clients seeking legal assistance with share acquisitions, pre-investment legal due diligence or disputes arising from Share Purchase Agreements are invited to contact BFSC Law at its Hanoi office.
Notice: This article is intended for general informational purposes only and does not constitute legal advice in respect of any particular transaction or dispute. The assessment and application of relevant legal provisions should be undertaken by reference to the specific documents and circumstances of each case and the laws in force at the relevant time.
Author: Lawyer Phan Quang Chung.