Share Subscription Agreements and Share Purchase Agreements in Corporate Transactions
Introduction
In general acquisition transaction, two legal instruments to govern the transaction are: the Share Subscription Agreement (SSA) and the Share Purchase Agreement (SPA). Although both agreements result in a change of ownership structure, they differ fundamentally in their legal nature, mechanics, and implications for the company and its shareholders.
Definitions and General Characteristics of SSA
An SSA is an agreement between a company and an investor, under which the investor agrees to subscribe for newly issued shares of the company.
Under this mechanism, the investor injects capital directly into the company, and in return, the company issues new shares to the investor. As a result, the total number of shares increases, leading to dilution of the ownership percentage of existing shareholders.
One of the defining features of an SSA is that the funds paid by the investor become part of the company's capital.
Definitions and General Characteristics of SPA
An SPA is an agreement between a seller (existing shareholder) and a buyer, under which the buyer acquires shares from the seller.
In contrast to an SSA, an SPA does not involve the issuance of new shares. Instead, it facilitates the transfer of existing shares from one shareholder to another. Consequently, there is no change in the total number of shares issued by the company.
The consideration paid by the buyer goes directly to the selling shareholder, not to the company.
Key Differences Between SSA and SPA
Here is a clear comparison matrix highlighting the key differences between SSA and SPA:
| Aspect | SSA | SPA |
|---|---|---|
| Nature of Transaction | Subscription for newly issued shares | Transfer of existing shares |
| Requirement | Optional | Mandatory |
| Object of Transaction | New shares | Existing shares |
| Recipient of Funds | Company | Selling shareholder |
| Impact on Capital | Increases issued and paid-up capital | No change to issued and paid-up capital |
| Dilution | Existing shareholders are diluted | No dilution (only transfer of ownership) |
| Change in Ownership Structure | Yes, with dilution of existing shareholders | Yes, but only reallocation among shareholders |
| Parties Involved | Company and new shareholder | Seller (existing shareholder) and buyer (new shareholder) |
| Required Documents | Shareholders' resolution (notarial), SSA (if needed) | Shareholders' resolution (notarial), Share Sale and Purchase Deed (Akta Jual Beli Saham) |
| Flow of Funds | Investor → Company | Buyer → Selling Shareholder |
From a legal perspective, it bears noting that SSA is not expressly required under Company Law, unlike SPA. The subscription of shares is legally consummated upon signing of the General Meeting of Shareholders. The shareholders' resolution will then be notarized and subsequently recorded in Ministry of Law's database.
However, in practice, the parties commonly enter into the SSA, or to be more precise, a conditional SSA. The agreement will govern the conditional precedent, the timeline, the number of shares, and the relevant details. This is mainly to secure the agreed commercial terms.
For SPA, Company Law recognizes two mechanisms for documenting the SPA: (i) by notarial deed; or (ii) by underhand agreement. It is further regulated that a notarial SPA is required for transactions that result in a "change of control," whereas transfers that do not trigger such a change may be documented through a private agreement. On the other hand, a notarized shareholders' resolution will still be required to satisfy the whole administrative procedures.
Conclusion — Key Takeaways
In essence, SSA and SPA serve different transactional purposes despite both resulting in changes to a company's ownership structure. An SSA is primarily used for capital raising, where an investor subscribes to newly issued shares and injects funds directly into the company, thereby increasing its share capital and diluting existing shareholders. In contrast, an SPA facilitates the transfer of existing shares between shareholders, with no impact on the company's capital and no dilution, as the consideration is paid to the selling shareholder.