Whether you're exploring growth opportunities, looking to diversify, or have been approached to purchase a company, acquiring a business through a share acquisition can be a strategic move, but it’s not without its complexities.
From understanding how share deals differ from asset purchases to navigating due diligence and negotiating the sale agreement, this guide explains what to expect, the pros and cons, and how to protect yourself, especially during periods of economic uncertainty.
Need support with an acquisition? Our expert M&A lawyers can guide you through every stage of the process.
Jump to:
- Legal due diligence: beyond the basics
- Financials and legal structure: where the two meet
- Contracts: the fine print that can derail a deal
- Funding the deal: legal considerations
- Getting the documents right
- Building protection into the SPA
- Confidentiality and exclusivity: protecting the deal
- Signing and completion: final legal steps
- Post-completion surprises - What if something goes wrong?
Legal due diligence: beyond the basics
Due diligence isn’t just a formality, it’s your opportunity to lift the bonnet and inspect what you’re buying. While accountants will dig into the numbers, legal due diligence focuses on the company’s structure, rights, obligations and risks. Read more about due diligence in M&A and why it's important in our guide.
For example, are all the shares properly issued and owned? Is there a forgotten class of preference shares that might dilute your control post-completion? Are customer and supplier contracts legally robust, or do they allow termination on a change of owner? Is all the intellectual property (IP) needed to operate the business owned by the company? Understand more in our article about how IP due diligence works in M&A.
A client of ours once purchased a successful software business, only to discover post-completion that the flagship product’s source code was owned by a freelance developer, not the company. The legal due diligence had been rushed, and the buyer had to spend months negotiating IP ownership after the deal closed. With the right questions asked upfront, the risk could have been avoided entirely, or the price renegotiated downwards to reflect the legal risk and expense involved.
Don’t overlook employment risks either. Are senior staff on solid contracts? Could there be claims brewing beneath the surface? And when it comes to intellectual property, regulatory compliance, or litigation history, early legal review can surface issues that might not be obvious but which have material consequences.
In a tougher economy, it also makes sense to dig deeper into working capital, solvency, reliance on a few major contracts, or dependencies on temporary support (such as Covid-era reliefs). What looks like a healthy business today may not be so resilient once support is stripped away.
Financials and legal structure: where the two meet
The numbers might look healthy, but the legal framework behind them is what really matters. If part of the deal includes deferred payments or performance-based earn-outs, you’ll need tight legal definitions around how those payments will be triggered, and what happens if they’re disputed.
Similarly, working capital adjustments are often a feature of deal pricing. But what exactly counts as working capital? Who decides? The contract must spell it out clearly to avoid disputes later.
If the company has existing debt, you’ll want to know whether you’re inheriting it. Are there bank covenants, personal guarantees or group-wide liabilities that could tie your hands after the deal? Often these won’t show up in a balance sheet, but they can severely restrict how you run the business going forward.
A well-known example from the food and drink sector involved a buyer acquiring a chain of cafés, unaware that one lease contained a break clause triggered by a change in ownership. The landlord exercised it immediately after completion, forcing the closure of a flagship branch and wiping out a significant chunk of revenue. It wasn’t a financial miss, it was a legal one.
Contracts: the fine print that can derail a deal
Contracts are where many buyers get caught out. The biggest risk? Change-of-control clauses. These give the other party the right to terminate or renegotiate if the company is sold, and they’re common in major customer and supplier agreements.
If one customer accounts for 40% of revenue and they can walk away on completion, that’s not just a legal problem, it’s a valuation issue. You need to know before the deal completes, not after.
Leases and service contracts can also hide liabilities. Do they automatically renew on poor terms? Are there early termination penalties? What about notice periods or restrictive clauses that will constrain your ability to pivot post-acquisition?
If the target has grown fast, legal housekeeping may have been neglected. Contracts might be inconsistently drafted or not signed at all. That may mean extra work post-completion involving tidying up, renegotiating, or in some cases, replacing entire agreements.
Funding the deal: legal considerations
If you’re using third-party funding, legal complexity increases. Lenders and investors will likely impose conditions before releasing funds. These might include board resolutions, legal opinions, or specific wording in the Share Purchase Agreement (SPA). We've created a guide to share purchase agreements if you want to learn more.
Where existing debt is in place at the target, lender approval may be needed for the sale to go ahead. This can take time, especially if foreign banks or cross-border structures are involved, so legal teams need to get ahead of the process.
In cases where funding is layered (e.g. mezzanine plus senior debt), an intercreditor agreement will be required to set out who gets paid first in the event of a default. This agreement isn’t just for worst-case scenarios, it can affect how much control you have post-deal, especially if performance falters.
Fast-moving deals often skip some of this preparation, to their detriment. Agreeing terms quickly is fine, so long as your legal team is closely involved in shaping them and securing your long-term flexibility.
Getting the documents right
Once terms are agreed, it’s time to formalise the deal.
The SPA is the central document. It sets out what you’re buying, how much you’re paying, and what protections you have if something goes wrong. It includes warranties (statements about the state of the business), indemnities (remedies for specific risks), and covenants (promises about conduct before completion).
The seller will also issue a disclosure letter. This allows them to qualify the warranties by revealing any issues in advance. From a legal perspective, this is a critical document. If something is fully disclosed, you may lose the right to claim later. Find out more about how disclosure letters work in our article.
You’ll also need board minutes and shareholder resolutions authorising the transaction, plus any releases of guarantees, new service contracts for key staff, or transitional arrangements.
Documentation isn’t just admin, it’s where deals are made enforceable. Every clause should reflect what’s been agreed commercially, and protect your position clearly and legally.
Building protection into the SPA
Especially in volatile markets, the SPA is where you build your safety net, more precisely, in the warranties and indemnities sections. Need more information? We've written handy warranties and indemnities guide for more information.
Warranties cover areas such as tax, employment, litigation, and compliance. If these turn out to be incorrect, you may have a claim for breach, but you’ll need to show loss, and act within time limits.
Indemnities go further, providing pound-for-pound protection. If there’s an ongoing tax investigation, for example, you can negotiate an indemnity to cover any liability that emerges later.
Retention mechanisms are also common: part of the price may be held in escrow or deferred until key conditions are met. These can give you leverage if something surfaces post-completion.
And then there are covenants, like requiring the seller not to hire staff or extract dividends between signing and completion. These protect the business’s value while the legal wheels turn.
Confidentiality and exclusivity: protecting the deal
In early negotiations, two short documents can make a big difference.
First, an NDA (non-disclosure agreement) ensures any confidential information stays private. This protects both parties and encourages honest disclosures during due diligence. if you want to learn more about NDAs, read our NDA FAQ article.
Second, an exclusivity letter prevents the seller from negotiating with others while you're finalising the deal. Without exclusivity, you risk investing time and money, only to be undercut by a rival at the last minute.
These tools are simple, but without them, deals can be lost, costs can spiral, and trust can evaporate.
Signing and completion: final legal steps
Signing the SPA feels like a finish line, but there’s often more to do.
If completion is simultaneous, legal teams will prepare all the final documents, organise payment flows, and ensure the correct filings are made immediately after.
If there’s a gap between exchange and completion, lawyers will be working to satisfy conditions such as securing consents, finalising documents, and ensuring no material changes occur in the meantime.
Even the payment structure requires care. Are funds being held back for tax liabilities? Are fees being deducted? Who receives what, and when? Precision here is vital, especially if the deal spans different jurisdictions.
Post-completion surprises - What if something goes wrong?
Despite best efforts, problems can surface after the deal.
If a warranty was untrue, you may have a claim, provided that the breach caused loss and the claim is brought within the agreed time limit (often 12–24 months).
Indemnities are often easier to enforce, since you don’t need to prove loss in the same way. And if part of the price is sitting in escrow, you may be able to make a claim without going to court.
But not every surprise is legally actionable. Some are commercial risks. Some reflect misunderstandings or poor assumptions. That’s why thorough due diligence and a well-drafted SPA are your best defence.
If you do suspect a breach post-completion, act quickly. Notify the seller, gather evidence, and take legal advice. Time limits, caps on liability and notification requirements can all affect your rights.
Finally, acquiring a business isn’t just about strategy, it’s about structure. The legal process underpins the value you’re trying to create, and when done right, it helps you lock in that value for the long term.
With the right legal advice, early and often, you can avoid common pitfalls, manage risk, and secure a deal that works on every level.
At Harper James, we help SME owners structure deals that hold up legally and deliver long-term value. From due diligence and funding to negotiation and post-completion support, our M&A lawyers are here to help.
