Sophos Law Guides

What is a Stock Purchase Agreement?

A stock purchase agreement is a contract between an issuer of stock, usually a corporation, and the purchaser of that stock, which may be an individual or an entity. It is the primary vehicle through which an incorporator or promoter of a corporation becomes a shareholder, i.e., owner, of a corporation.

Selling stock is the primary way corporations raise money to finance growth. Publicly traded companies offer their stock for sale through an exchange, while privately held companies may only offer their stock for sale subject to compliance with certain rules, regulations, and exemptions established by state and federal securities regulators, such as the U.S. Securities and Exchange Commission.

Different classes and series of stock may be issued using a stock purchase agreement. Stock may be issued through a sale, a subscription, a gift, or a grant. Depending on the class of stock being issued and how such stock is being issued, a stock purchase agreement may often times have different titles. Regardless of title, the purpose of a stock purchase agreement is to evidence the issuance of stock and the terms and conditions associated with the issuance. The basic terms of a stock purchase agreement include the type of class and series of stock being issued, the number of shares being issued, the price per share, and any rights, conditions, restrictions, or privileges that the issuer or recipient may have with regard to the stock.

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