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A Share Purchase Agreement (SPA) is the key legal document when transferring shares in a UK private company. An SPA will 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.
Key clauses will typically include warranties (promises about the business condition), indemnities (specific financial protections), payment terms (timing, escrow arrangements, deferred consideration), and completion arrangements.
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.
Purchase price and payment terms - establishes the agreed price for the shares and outlines the payment schedule. The most common forms, quite commonly made up of a combination, of consideration are as follows:
cash either all or part payable at completion.
deferred consideration is often used and can take many forms but the most often used mechanism is based on a certain timeframe (eg 12 months after completion of the transaction), an earn out, or loan notes.
an issue of shares in the buyer.
some form of debt instrument such as loan notes – there is a section below summarising loan notes) issued by the buyer to the seller.
Warranties and indemnities - legally binding assurances, typically about the accuracy of information provided, finances and other important issues and, with a full share sale, probably indemnities in favour of the buyer against specific potential future liabilities. Negotiation of the warranties can be lengthy and time consuming, as the seller needs to review each warranty, confirm the warranty can be given, and at the same time identify any disclosures, while the solicitors will try to limit the warranties (if acting for the seller) or preserve or extend them (if acting for the buyer).
Conditions precedent - specific events that must occur before the agreement is finalised, such as regulatory approvals or financial audits.
Post-completion restrictions and covenants - restrictions and obligations given by departing shareholders, such as non-compete agreements, confidentiality and information sharing clauses.
Termination provisions - circumstances under which either party can terminate the agreement before completion.
Navigating an SPA requires awareness of potential risks :-
Minority shareholder rights - When acquiring a non-controlling stake, consider voting rights, dividend distributions, drag-along and tag-along rights, Board representation (board seats or observer rights), possible different classes of preference shares with enhanced voting and/or other rights
Breach of warranty - If a seller's warranty proves inaccurate, the buyer may claim damages but successful recovery of losses is always uncertain.
Tax implications - understanding tax consequences for both parties is crucial.
Change of circumstances - unforeseen events like market downturns or regulatory changes can impact the transaction.
Our experienced corporate lawyers offer a comprehensive, cost effective range of services including drafting and review of comprehensive share purchase agreements and the underlying transaction the SPA is needed for.
Please call or email us to discuss your needs and to find out why we are the right choice of lawyers for you.
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Partner - Corporate law
Nicholas is a Partner in our Corporate and Commercial team. He mainly operates out of Bedford, Peterborough, and London.
Nicholas qualified as a solicitor in 1995 with a City law firm. Since then he has gained significant experience in the City,...