The Share Purchase Agreement in a Japanese Small M&A: Eight Clauses for the Buyer
In a share acquisition, the document that settles the deal is the share purchase agreement — in Japanese practice usually called the 株式譲渡契約書, and often referred to as the SPA.
In small transactions, where the parties are talking directly or through an intermediary and things move quickly, it is tempting to treat the SPA as a formality: agree the price and the completion date, take the broker's template, sign.
From the buyer's side that is a misreading of what the document does. The SPA is not a receipt for the shares. It is the allocation of risk after closing: who carries what you found in due diligence, what has to happen before completion, and what the remedy is if the seller's account of the business turns out to be wrong.
The SME Agency's guidelines on small and medium-sized M&A list the main items a definitive agreement deals with — the subject matter, the consideration and how it is paid, the treatment of the owner and the staff, representations and warranties, conditions to closing, non-compete undertakings and termination rights.
If due diligence finds something and the agreement says nothing about it, the risk stays with you. The SPA is the exit route for legal due diligence.
Why does the agreement matter so much in a share deal?
Because the company survives the transaction unchanged. Its contractual obligations and its latent problems were inside it before the deal and they are inside it afterwards.
Once you hold the shares, you carry the economic consequences of all of it as shareholder. The only moment at which that allocation can be changed is before signing. That is what the clauses below are for.
The eight clauses a buyer should read closely
1. What is actually being sold
How many shares, from whom. If the intention is to acquire the whole company, the question is whether every issued share is in fact being transferred, and from everyone who holds one.
Where the articles restrict share transfers, the approval procedure has to be followed. If the ownership position is doubtful at all, the better course is usually to require it to be resolved before closing rather than to buy the doubt.
2. Price and how it is paid
The price is the easy part. When and on what conditions it is paid is where disputes come from.
Is it a single payment at closing, instalments, or an additional payment once a target is met? Is there a post-closing adjustment mechanism, and who calculates it?
Any payment falling due after closing creates exposure in the other direction — the seller's exposure to non-payment, and both parties' exposure to arguments about whether a condition was met. The SME Agency has published specific warnings about trouble arising from deferred and instalment consideration.
3. Conditions to closing
Signing and completion are not always the same day. Where they are not, certain things can be made preconditions to completion:
- obtaining consent from key customers
- completing the company's internal approval of the share transfer
- rectifying a problematic contract
- completing any regulatory step on the licence side
- settling with the bank how the outgoing owner's personal guarantee will be dealt with
Where something is genuinely a premise of your decision to buy, "the seller shall use reasonable efforts" is not enough. If it cannot be solved, you should not have to close.
4. What the seller may and may not do before closing
Where there is a gap between signing and completion, the agreement normally requires the business to be run in the ordinary course and restricts significant steps in the meantime — entering major contracts, borrowing, disposing of assets, changing employment terms.
The purpose is simple: the company you complete on should be the company you agreed to buy.
5. Representations and warranties
The seller states that specified facts are true and stands behind them. Typical subjects include:
- that the seller lawfully holds the shares being sold
- that the financial statements are not materially misstated
- that there are no material undisclosed liabilities
- that there is no material breach of the key contracts
- that material litigation and disputes have been disclosed
- that there are no specified tax or employment problems
More is not automatically better. Warranties have to be designed together with what due diligence found, the price, what the seller can realistically know, and the cap and time limits that go with them. A long list of warranties from a seller with no assets is worth less than a shorter list plus a holdback.
6. Indemnities
What happens in money terms when a warranty turns out to be wrong or the agreement is breached.
The points to settle are:
- what is covered
- for how long a claim can be brought
- the cap on liability
- how small claims are handled, including any threshold
- whether a particular known risk is carved out of the ordinary cap and time limit
Unlimited, perpetual seller liability is not a realistic ask in a small deal and tends to kill the transaction rather than protect the buyer. The SME Agency's materials likewise approach warranties as something to be settled in light of the due diligence findings and how the risk has been reflected in the price.
7. Termination
On what grounds can a party walk away before completion?
Material breach of warranty, material breach of the agreement and failure of a condition precedent are the usual candidates.
An agreement that says only that the parties will "discuss in good faith" if a problem arises leaves the buyer without a clear right to exit — which is precisely the right you want at the moment you discover something.
8. Post-closing obligations and non-compete
In a small acquisition, a large part of the value often sits with the outgoing owner personally: the customer relationships, the know-how, the supplier contacts.
So the agreement commonly deals with a handover period, confidentiality, non-competition and non-solicitation of customers and staff. A restriction drawn too widely, however, raises its own questions of enforceability, so the sensible approach is to define what you actually need — which customers, which activity, for how long — rather than to ask for everything.
What is wrong with just using the template?
The SME Agency itself publishes a sample share transfer agreement, and the sample is written on the assumption that the parties will adjust the specifics and consult a lawyer where needed.
A template is useful for knowing which clauses exist. It cannot know:
- whether the value of this business depends on one customer contract continuing
- whether unpaid overtime has been identified as a concrete exposure
- whether the chain of title to the product's code has a gap in it
- whether the licence can be maintained only on certain conditions
Those facts are what decide which clauses you need and how they should read. A template with the deal's actual risks left out is a document that looks like protection without being any.
The agreement can only be drafted after due diligence
One of the reasons to do due diligence at all is to know what to put in the contract.
If due diligence shows that a key customer's consent is required, that consent becomes a condition to closing. If a specific overtime exposure is quantified, it becomes a price adjustment or a specific indemnity. If the seller cannot establish title to part of the IP, the rectification happens before closing or not at all.
Treating due diligence and the SPA as two separate jobs is how findings get lost between them. The mechanics are set out in turning due diligence findings into deal terms.
In short
Even in a small acquisition, the share purchase agreement is doing real work. From the buyer's side it should make clear:
- what you are buying
- at what price, and when it is paid
- what has to be true or done before you complete
- what happens if the seller's account was wrong
- who carries each of the risks due diligence identified
The aim in a deal of a few million to a few tens of millions of yen is not a long agreement. It is a short one that still carries the risks that matter.