Share Purchase Agreement: Structuring and Protecting the Deal
In a share sale, the Share Purchase Agreement (SPA) is the principal transaction document. It is the legally binding contract under which ownership of the company’s shares transfers from seller to buyer.
Unlike Heads of Terms, which set out commercial intent, the SPA defines the detailed legal obligations, risk allocation and completion mechanics of the transaction. It governs what is being sold, what protections apply, and what happens if things go wrong.
At Jonathan Lea Network, we draft and negotiate SPAs that are commercially focused, technically rigorous and aligned with your wider transaction strategy.
What Is a Share Purchase Agreement?
A Share Purchase Agreement typically covers:
- The number and class of shares being sold
- The purchase price and payment structure
- Completion mechanics and conditions precedent
- Warranties and indemnities
- Limitations on liability
- Restrictive covenants
- Post-completion obligations
In a share sale, the buyer acquires the entire company — including its assets, liabilities, contracts and historic risks. The SPA therefore becomes the primary mechanism for managing risk between the parties.
Core Commercial Terms
Purchase Price and Structure
The SPA will define:
- Fixed consideration or deferred payments
- Earn-out mechanisms
- Completion accounts or locked-box arrangements
- Working capital adjustments
- Retentions or escrow provisions
The drafting must reflect the agreed commercial model with precision. Ambiguity at this stage creates scope for post-completion disputes.
Conditions Precedent
Completion may be conditional upon:
- Regulatory approvals
- Change of control consents
- Lender consents
- Internal corporate approvals
Clear drafting ensures that obligations and timelines are structured, enforceable and realistic.
Warranties and Disclosure
Warranties
Warranties are contractual statements made by the seller about the condition of the business. They typically cover:
- Financial statements
- Tax affairs
- Material contracts
- Employment matters
- Litigation
- Intellectual property
- Compliance and regulatory issues
If a warranty proves inaccurate, the buyer may have a claim for breach.
Disclosure
Sellers qualify their warranties through a formal disclosure process. Properly prepared disclosure letters are essential to:
- Reduce post-completion exposure
- Prevent inadvertent liability
- Ensure clarity on known risks
We manage this process carefully to balance protection with commercial pragmatism.
Indemnities
Indemnities provide more specific, often stronger, protection for identified risks — for example:
- Ongoing litigation
- Tax liabilities
- Regulatory investigations
- Environmental issues
Unlike warranties, indemnities usually operate on a pound-for-pound recovery basis. Their scope and drafting require particular care.
Limitation of Liability
A central part of SPA negotiation concerns the seller’s financial exposure.
Typical limitations include:
- Financial caps on claims
- Time limits for bringing claims
- De minimis and basket thresholds
- Restrictions on double recovery
Well-structured limitation provisions bring certainty and allow sellers to plan their post-sale position.
Restrictive Covenants
Buyers commonly require non-compete and non-solicitation covenants to protect goodwill and business value.
These must be:
- Reasonable in scope, geography and duration
- Legally enforceable
- Proportionate to the transaction
Overly broad restrictions risk unenforceability; overly narrow ones risk insufficient protection.
Completion Mechanics
The SPA will define:
- What must occur at completion
- Funds flow arrangements
- Delivery of corporate documents
- Board and shareholder resolutions
- Resignation or appointment of directors
Precision here avoids last-minute disruption and ensures a controlled transfer of ownership.
Strategic Considerations for Sellers
For sellers, the SPA is fundamentally about:
- Protecting sale proceeds
- Limiting long-term liability
- Managing earn-out exposure
- Ensuring clean exit arrangements
We focus on disciplined risk containment while preserving deal momentum.
Strategic Considerations for Buyers
For buyers, the SPA is about:
- Securing robust protection against historic liabilities
- Ensuring financial assumptions are contractually supported
- Structuring price mechanisms that reflect actual performance
- Building enforceable post-completion safeguards
The agreement must reflect both commercial objectives and risk appetite.
Why Precision Matters
A Share Purchase Agreement is not simply a template document. It is a highly negotiated risk allocation instrument that can materially affect:
- Future litigation risk
- Tax exposure
- Cash flow
- Operational control
- Reputation
Careless drafting can result in expensive disputes long after completion.
Our Role
We provide end-to-end legal support in relation to SPAs, including:
- Drafting and negotiation
- Strategic risk assessment
- Warranty and indemnity analysis
- Disclosure management
- Alignment with tax and financial advisers
- Completion coordination
Our approach is commercially focused, technically thorough and structured to maintain transaction discipline.
Delivering Certainty at Completion
The Share Purchase Agreement is the contractual backbone of a share sale. When properly constructed, it provides clarity, balance and enforceable protection for both sides. If you are buying or selling a company, robust SPA drafting and negotiation are central to achieving a controlled and successful completion.
Speak to Our Share Purchase Agreement Lawyers Today
Practical, trusted legal advice
If you are buying or selling a company and require expert support with a Share Purchase Agreement, Jonathan Lea Network can assist. Call us on 01444 708640 or email wewillhelp@jonathanlea.net to arrange an initial consultation and discuss how we can structure and protect your transaction through precise SPA drafting and negotiation.
FAQ: Share Purchase Agreement
Rescission after completion is rare and typically only available in cases of serious misrepresentation or fraud. In most transactions, the SPA limits remedies to damages rather than unwinding the deal. The availability of rescission will depend on the contractual wording, the nature of the breach, and whether restitution is practically possible. W&I insurance sits alongside the SPA and can replace or supplement the seller’s liability exposure. The SPA must be carefully aligned with the policy terms, particularly regarding warranty scope, disclosure standards and limitation provisions. Misalignment can create uninsured gaps in protection. A locked-box leakage claim arises where value has improperly been extracted from the business between the locked-box date and completion. A completion accounts dispute, by contrast, concerns post-completion adjustments to price based on actual financial metrics (e.g. net debt or working capital). The risk profile and evidential requirements differ significantly between the two mechanisms. An SPA alone does not automatically bind minority shareholders unless they are parties to it. However, drag-along provisions in the company’s articles of association or a shareholders’ agreement may allow majority shareholders to compel minority participation in a sale, subject to strict procedural compliance. Earn-out disputes often arise from accounting interpretation, performance metrics or operational control post-completion. SPAs commonly provide for expert determination rather than court proceedings for technical accounting issues. Clear drafting of calculation methodology and governance rights is essential to reduce litigation risk.
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