If you’re buying or selling a business that operates as a company, the most common way to do this is via transfer of its shares. Under a share purchase, the business remains intact but under new ownership. The contract for sale is usually called a share purchase agreement or SPA.
Buying shares of a company rather than assets has several advantages. It’s less disruptive for the business, liabilities remain where they are, and the transaction can be tax efficient.
While it’s possible to find model SPAs on the internet, we wouldn’t recommend using them. It’s safer to have lawyers create a document that’s bespoke to the deal and reflects the nuances of the business.
This guide walks you through the SPA process and the main terms of the agreement.
Jump to:
- What is a share purchase agreement (SPA)?
- Who prepares the first draft of the SPA?
- Should you use a lawyer to draft a share purchase agreement?
- What's the share purchase agreement process?
- Share purchase agreement due diligence
- What are the main terms of a share purchase agreement?
- Execution of a Share Purchase Agreement
What is a share purchase agreement (SPA)?
A share purchase agreement (SPA) sets out the terms of a sale of company shares and is the backbone of any well-executed business sale.
It sets out exactly what’s being bought, the price, and crucial protections for both parties. Without a properly drafted SPA, buyers risk inheriting hidden liabilities such as unpaid debts, tax issues, or legal disputes, while sellers could face claims long after the deal is done.
A loose agreement invites ambiguity, disputes, and costly litigation. A well-prepared SPA ensures a clean, clear transaction, safeguarding against unexpected surprises. Cutting corners here is false economy; a watertight SPA isn’t just paperwork, it’s peace of mind, ensuring the deal goes through smoothly and securely.
These are the main terms you can expect to see:
- The identity of the seller and buyer, and the price
- Any pre-conditions to the sale, like getting consents from third parties
- Buyer protections
- The sale timetable
- Confidentiality requirements
Who prepares the first draft of the SPA?
The buyer’s lawyers usually prepare the first draft of the SPA, because they’re the party most at risk. Where a company is being sold at auction, however, the seller’s lawyer provides the contract for inspection by interested bidders.
Once they have the draft document, the buyer investigates the company being sold (this is known as due diligence), following which the parties negotiate and sign the SPA. The buyer pays for the company, and the shares are transferred to them. Usually, this takes place on the same day.
Should you use a lawyer to draft a share purchase agreement?
The share purchase agreement is a crucial document in any M&A transaction and whether you’re a buyer or a seller, beware of going the DIY route as this can prove costly.
From a buyer’s perspective, the SPA isn’t just paperwork, it’s your shield against nasty surprises. Miss something, and you could inherit undisclosed debts, tax nightmares, or even litigation. The SPA is heavily negotiated, often right up to the final moments before signing, so having the right legal team is critical. They’ll ensure the risks are fairly shared and that you are protected from future disputes.
DIY shortcuts? False economy. A strong SPA locks in exactly what you’re buying, and what you’re not. Choose a legal advisor who knows your business and your goals. It’s the smartest investment you’ll make in the deal.
Selling a business? Get the SPA right, or risk paying for it later. A poorly drafted SPA can leave you exposed to claims, financial clawbacks, or liability for issues that should have been the buyer’s problem. The deal isn’t done until the ink is dry, and the SPA is often negotiated until the last minute, so don’t go in unarmed. A savvy legal team ensures a fair split of risk and reward, keeping future disputes off your doorstep. The right advisor doesn’t just seal the deal, they protect your exit, your earnings, and your peace of mind.
What's the share purchase agreement process?
The SPA process follows a structured path to ensure a smooth transaction. Here’s how it unfolds:
- Pre-Contract: The groundwork is set. Both parties agree on key terms, sign NDAs and exclusivity agreements, and conduct due diligence, examining financials, contracts, and legal risks. The initial SPA draft is prepared.
- Contract Negotiation: The seller secures regulatory approvals and any third-party consents required for the sale. Meanwhile, both sides negotiate SPA terms, ensuring risk and responsibilities are clearly defined.
- Post-Contract: The deal is finalised. Funds are transferred, shares officially change hands, and taxes or other costs are settled.
Each phase carries potential pitfalls, from hidden liabilities in due diligence to contract loopholes that could leave you exposed. A well-drafted SPA protects your interests, ensures compliance, and prevents costly disputes. Cutting corners here is a risk you can’t afford.
Share purchase agreement due diligence
Before signing an SPA, the buyer needs a clear, detailed view of the business they’re acquiring. This is where due diligence comes in, allowing the buyer to assess risks, verify information, and make informed decisions.
During this process, the seller provides key documents and disclosures, including:
• Financial records – Accounts, financial projections, customer data, and tax details
• Ownership structure – Shareholders, share classes, and corporate governance
• Legal standing – Ongoing or threatened litigation, compliance risks
• Property assets – Leased or owned premises, existing agreements
• Intellectual property – Trademarks, patents, and proprietary assets
• Employees & pensions – Workforce details, contracts, and liabilities
• Company structure – Board members, management hierarchy, and subsidiaries
Due diligence isn’t just about gathering information, it’s about understanding what’s missing and spotting red flags. A lawyer ensures the seller fully discloses risks, helps the buyer negotiate protections, and prevents nasty surprises post-sale.
What are the main terms of a share purchase agreement?
Definitions
Certain terms in an SPA) carry specific legal meanings or may be ambiguous. Including a definitions section makes the document clearer and helps avoid disputes.
Parties
The SPA opens by clearly identifying the buyer and seller with their addresses or registered offices. If there are several shareholders, each must sign to ensure individual and collective liability. Occasionally, a guarantor, such as a bank, will also be a signatory, particularly when business property is involved.
Sale and Purchase of Shares
At its core, the SPA confirms that the seller will sell and the buyer will purchase the shares, usually ‘with full title guarantee’. This guarantees that the seller can transfer the shares free from any third-party rights.
Price
The agreement must specify the sale price, currency, and payment schedule. While cash is the norm, some deals may involve shares or loan notes instead. In these situations, it is essential to consult a lawyer to navigate the complexities and protect both parties.
Sale Conditions
Often, signing, payment, and share transfer happen on the same day. However, if conditions need to be met such as shareholder approvals, HMRC tax clearance, regulatory consents, or third-party permissions, a delay may occur. A lawyer’s input is crucial to precisely define these conditions, allocate responsibilities, and outline remedies if deadlines (or ‘long-stop’ dates) are missed. This legal guidance also protects the buyer against unforeseen losses during any interim period.
Best and Reasonable Endeavours
Terms like ‘best endeavours’ impose a strict obligation, meaning every possible effort must be made regardless of cost. Lesser obligations are often stated as ‘all reasonable endeavours’ or simply ‘reasonable endeavours.’
Flexible Payments and Earn-Out Clauses
Sometimes, the final sale price adjusts based on the company’s performance after the sale. This might involve deferred payments or earn-out clauses linked to future profits or targets. Drafting these arrangements is complex, so involving legal (and financial) experts is indispensable. Likewise, if part of the price is held in escrow to cover potential warranty claims, professional advice is vital.
Completion
The SPA should detail the completion process, including the timing, location, document exchange (such as share certificates and signed forms), board meetings, and any required director resignations or handovers of company records. Legal oversight ensures that all these steps are managed properly and that any issues are promptly resolved.
Warranties and Indemnities
Share transactions follow the ‘buyer beware’ principle, offering limited statutory protection against unforeseen liabilities.
As a result, sellers provide warranties (clear statements about the company’s state of affairs) to encourage full disclosure and to act as a safeguard. Should any warranty prove untrue, the buyer may claim breach of contract to recoup part of the purchase price. Disclosures made via a disclosure letter help highlight known issues, ensuring the buyer can adjust the price or their decision accordingly.
Indemnities further protect the buyer by obliging the seller to cover losses if warranties are breached.
Given the complexity and precision required, covering matters such as share ownership, accurate financial records, legal compliance, employee details, asset verification, supplier relationships, and insurance or tax issues) it is vital to have a lawyer involved. Legal expertise ensures that each warranty and indemnity is drafted clearly, any liability limits are properly set, and the buyer’s interests are robustly protected.
Restrictive covenants
These clauses prevent a seller from competing with the buyer post-sale, for instance by working in the same sector or region, or by targeting the buyer’s staff, clients, or suppliers. While the law does imply certain restrictions—such as protecting trade secrets—these are limited. That’s why having a lawyer is essential to draft precise and enforceable covenants that truly safeguard the buyer’s interests.
Communications and confidentiality
SPAs typically include provisions to keep the transaction details private and to control public announcements about the deal. Legal guidance ensures these clauses are clear, balanced, and fully compliant with relevant confidentiality requirements.
Execution of a Share Purchase Agreement
Execution depends on the parties involved, be they limited companies, individuals, or partnerships.
Typically, the agreement is simply signed without needing witnesses or seals, and can be executed either electronically or manually. Engaging a lawyer ensures that all legal formalities are observed and that the document meets the necessary standards.
Tax Implications
Even with full disclosure, unforeseen tax liabilities can emerge. SPAs usually include both tax warranties and a tax covenant (or indemnity) to protect the buyer. The tax covenant covers the full tax amount payable: pre-completion liabilities fall to the seller, while post-completion liabilities become the buyer’s responsibility. Tax warranties offer further protection if actual liabilities exceed initial estimates. Professional legal advice is essential to draft these clauses precisely and to avoid costly future disputes.
Dispute Resolution
Most SPAs outline a dispute resolution process, often favouring mediation or arbitration. If these mechanisms fail, the parties may resort to legal action. Legal expertise is vital to ensure that dispute resolution clauses are fair and robust, safeguarding your interests should disagreements arise.
Ready to secure your transaction? Rely on our expert solicitors to draft, execute, and safeguard your share purchase agreement and complete your deal. Contact our experienced team today to ensure every clause is meticulously crafted, protecting your interests and preventing future disputes. Let us help you achieve a smooth, secure, and worry-free deal.
For more answers to commonly asked questions and advice on share purchase agreements, mergers and acquisitions and tax covenants, consult our corporate solicitors. Get in touch on 0800 689 1700 email us at enquiries@harperjames.co.uk, or fill out the short form below with your enquiry.
