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A Share Purchase Agreement may be needed in many different commercial scenarios, from complex private equity investments (majority or minority stake), full company acquisitions, transactions between existing shareholders or family business succession situations.
Common variables include investor protections (board seats, veto rights), non-compete clauses, earn-out structures, and disclosure requirements. Nearly every aspect of an SPA is subject to negotiation, with outcomes heavily influenced by the relative bargaining power of buyers and sellers, market conditions, and the specific risks identified during due diligence.
Because every business is different, and every transaction is driven by its own commercial aims, tax considerations and risk profile, an SPA needs to be carefully tailored to reflect what the parties intend.
Working with an experienced lawyer ensures the agreement reflects both the commercial agreement and the legal practicalities of the transaction.
Technically, all you need to transfer shares is a Stock Transfer Form. However, both the seller and the buyer need to take certain actions to ensure that the transaction is as successful as possible. For the seller they need to prepare the business for sale in order to maximise the sale price. For the buyer, as the risks in a transaction are on the buyer then they need to consider how to reduce those risks, for example, through due diligence, and through the SPA including warranties, indemnities, and deferred consideration. Therefore, for both parties, before drafting begins, it is essential to understand the fundamentals of the business including why transaction is taking place.
Key early questions include:
• Is this a full exit, partial sale, investment round or succession plan?
• How will the deal impact existing shareholders, and do the articles of association or any shareholders’ agreement contain pre-emption rights or transfer restrictions that must be followed before the sale can proceed?
• Are there tax or restructuring steps to complete before the sale?
• Will other documents (shareholders’ agreements, service contracts, finance documents) need updating?
• Are there regulatory or contractual restrictions that shape the deal?
• What risks have been highlighted through early due diligence?
Only by understanding this wider context can the SPA be drafted effectively.
An SPA and its ancillary documents define the deal structure, allocate risk and set out the parties’ rights and obligations. Because these issues vary widely between transactions, the SPA must be drafted to suit the specific business, the negotiated transaction, and risks that are acceptable to each of the seller and the buyer.
Typical areas include price (how much and when), conditions for completion, warranties, indemnities, liability caps and post-completion obligations.
Price, and how much and when it is paid, is often one of the most negotiated aspects of an SPA. The chosen mechanism affects risk, value and certainty for both parties. Each variable requires careful drafting and an understanding of how the risk is to be allocated.
Common variables include:
• Fixed vs adjustable price - a fixed price offers certainty but may not reflect changes in the business between signing and completion; adjustable pricing can account for movements in cash, assets, debt or working capital.
• Completion accounts or locked-box mechanisms - completion accounts adjust the price after completion based on actual financial results, while a locked-box fixes the price using historic accounts; the choice depends on timing, financial stability and the parties’ appetite for post-completion negotiation.
• Earn-out arrangements - earn-outs by the seller link part of the price to future business performance, allowing buyers to pay for proven results and sellers to benefit from growth; they require precise definitions of metrics to avoid disputes.
• Retentions or escrow accounts - a portion of the price is held back temporarily to cover potential risks or claims; this gives the buyer comfort while ensuring fair and transparent release terms for the seller. We rarely see the use of escrow accounts in the UK although they remain a useful tool in the USA.
• Deferred consideration or loan notes - payment is made in stages or via an instrument such as a loan note, assisting with cash flow, tax planning or risk distribution; timing, security and conditions for payment must be negotiated. We find that many transactions have a deferred payment element with a payment being made after 12 months and 24 months in order that the buyer has been through a full financial cycle after buying the company.
• Definitions of working capital, cash and debt - these financial definitions directly affect price adjustments and must be tailored to the company’s accounting practices to prevent later disagreement.
Conditions precedent ensure that essential steps are completed before ownership transfers. These must be tailored to the business, sector and legal structure.
They often include:
• Third-party consents (landlord, lender, supplier)
• Regulatory approvals
• Delivery of key financial information
• Reorganisation steps or group restructuring
• Tax or compliance confirmations
Well-drafted CPs protect both sides and prevent disputes or delays.
There are two main ways in which a buyer will reduce risk, the first is due diligence, and the second is through warranties. Warranties provide assurances about the state of the company and create recourse if information proves inaccurate. Warranties are often described as “contractual promises”. The suite of warranties are often a standard set of warranties but can be tailored in accordance with the type of industry sector, the nature of the business, and any identified or perceived risks.
Typical areas covered include:
• Fundamental warranties such ownership of shares without encumbrances
• Financial statements
• Employees and pensions
• Contracts and customers
• Data protection and IP
• Litigation and regulatory compliance
• Tax matters
Experienced lawyers will ensure that warranties are understood by the sellers, and that an effective disclosure process is used if a warranty can’t be given.
Indemnities provide targeted protection for identified risks discovered during due diligence. They are bespoke and often relate to for example, ongoing disputes, property or environmental issues, breaches of employment law, or known contractual liabilities.
Their scope and interaction with warranties must be drafted with care to ensure they function as intended.
Many obligations continue after the sale completes. These must be practical, enforceable and proportionate.
Common provisions include:
• Non-compete and non-solicitation restrictions
• Transitional assistance or consultancy arrangements
• Access to records or systems
• Earn-out reporting and cooperation requirements
An experienced lawyer ensures these obligations support business continuity and protect the buyer’s investment.
Liability provisions are among the most negotiated aspects of an SPA. They define the seller’s exposure and the buyer’s protection.
Key elements include:
• Overall liability caps – usually the purchase price
• Minimum claim thresholds and baskets for a breach of warranty
• Time limits for bringing breach of warranty and tax claims
• Notice requirements
• Exclusions for disclosed matters
Negotiating these terms requires an understanding of market norms and the commercial priorities of both sides.
Share sales involve co-ordinated work across multiple disciplines especially corporate, employment and property lawyers, but on larger or more specialised transaction this could include pensions, intellectual property, and others. Experienced legal oversight ensures that due diligence, drafting, disclosure, approvals and completion steps align smoothly.
The overview of the typical process includes:
1. Heads of Terms
2. Confidentiality Agreement
3. Due diligence including the use of a data room
4. Drafting and negotiation of the SPA
5. Preparing the disclosure letter and ancillary documents
6. Completion
7. Post-completion obligations
This coordination reduces the risk of delay and ensures all documents work together.
Choosing between a share purchase and an asset purchase affects liability, tax outcomes and operational continuity. This decision must be based on the specific business, sector, and negotiation aims of the parties. An experienced lawyer provides clarity on which structure better fits the deal.
Do I always need an SPA for a share sale?
No. Technically you can just transfer shares using a Stock Transfer Form. However, buyers will usually insist on an SPA as the risk is on them. Shares transfer the entire company, including assets and liabilities. An SPA clarifies obligations and protects both parties.
How do shareholders affect the process?
They may have pre-emption rights, veto powers, EMIS, drag/tag provisions or other rights that influence the structure and timing of the transaction.
What documents sit alongside an SPA?
If the transaction isn’t for all the shares then you need to look at Shareholders’ Agreements, articles of association, option schemes, service contracts and financing agreements which may need updating or aligning with the SPA.
How long does the SPA process take?
Timescales vary and depend on how quickly the parties want the transaction completed. We can get the deal done in a short timeframe, say 2 weeks but many private-company transactions complete within 4–12 weeks depending on the size of the deal, complexity, number of shareholders, due diligence, negotiation and third-party consents.
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