Harper James advises UK businesses on share purchase agreements under the laws of England and Wales. A share purchase agreement (SPA) is the contract under which a buyer acquires shares in a company from one or more sellers, usually transferring ownership of the company together with its assets, liabilities, contracts and business operations.
An SPA identifies the buyer, seller and target company, and specifies the shares being sold, their class, number and rights. The consideration clause sets out the purchase price and payment structure. Payment may be made in cash, shares, deferred instalments or an earn-out linked to post-completion performance. The agreement should define how the price is calculated, including any completion accounts, locked-box arrangements, net debt adjustments or working capital mechanisms.
The agreement also records conditions that must be satisfied before completion. These can include shareholder or regulatory approvals, lender consent, key customer or supplier consent, and the reorganisation of the target group. Completion provisions set out the documents and actions required for the transaction to close, such as delivering stock transfer forms, resignations, releases of security and evidence of payment.
Warranties are contractual statements about the target company, covering matters such as accounts, assets, contracts, employees, intellectual property, litigation, tax and data protection. The buyer uses the due diligence process to assess these statements. The seller qualifies warranties through a disclosure letter, which identifies information that limits or prevents a warranty claim.
Indemnities allocate specific identified risks between the parties. For example, a seller may indemnify the buyer for a known tax exposure or ongoing dispute. The SPA normally includes limits on warranty and indemnity claims, including financial caps, time limits, minimum claim thresholds and rules against double recovery. Buyers seek broad and usable protection, while sellers seek certainty about their continuing liability after completion.
An SPA may contain restrictive covenants preventing sellers from competing with the target, soliciting customers or employees, or using confidential information. These provisions must be drafted with regard to their purpose, scope and enforceability. The agreement also deals with tax covenants, confidentiality, announcements, post-completion assistance and the governing law and jurisdiction.
Buyers should review the relationship between the SPA, the disclosure letter, the target company's articles of association and any shareholder agreement. Sellers should confirm that warranties accurately reflect the information available to them and that the liability provisions match the agreed allocation of risk. Clear drafting at the term sheet, due diligence and disclosure stages reduces uncertainty when the transaction reaches completion.