A share purchase agreement, usually shortened to SPA, is the contract under which a buyer acquires shares in a company from its existing shareholders. It is not the document that transfers legal ownership of the shares: under section 770 of the Companies Act 2006 a company may only register a transfer once a proper instrument of transfer has been delivered to it, and the buyer becomes a member when the company enters them in its register of members under section 113. What the SPA does is govern everything around that transfer, which is to say the price, the promises the seller makes about the company, and what the buyer can recover if those promises turn out to be wrong.
That distinction matters more than it sounds. The mechanics of moving shares between two people are simple and cheap. The SPA exists because the buyer is taking on a company with a history it did not create, and because the parties need to agree, in advance and in writing, who pays when that history produces a bill. We act for both buyers and sellers on share deals, and the clauses that take the longest to settle are almost always the ones that decide that question.
When a share purchase agreement is used
An SPA is used whenever shares in a company change hands under negotiated terms rather than on a market. In practice that covers most SME transactions we see:
- An owner selling the whole of a private limited company to a trade buyer or an investor.
- A management buy-out or buy-in, where the incoming team acquires the shares from the existing owners.
- A shareholder exiting a company and selling their stake to the remaining shareholders or to a third party.
- A group reorganisation where a subsidiary is sold to a connected or unconnected buyer.
- A partial acquisition, where a buyer takes a controlling or minority stake and the remaining shareholders stay in the business.
It is not used where the buyer is taking the trade and assets of a business rather than the company that owns them. That is an asset deal, and it needs an asset purchase agreement instead, with a different structure and a different set of risks. If you have not yet settled which route the deal is taking, that decision comes first, because it changes the tax position, the consents you need and the shape of the contract. We cover the comparison in detail in our guide to share sale versus asset sale.
One consequence of buying shares is worth stating plainly, because it is the single biggest practical difference. In a share sale the company carries on as the same legal person. It keeps its contracts, its employees, its property interests, its licences and its tax history. Nothing needs to be assigned or novated unless a contract contains a change of control clause. The buyer inherits the lot, including the parts nobody has found yet. That is why a share purchase agreement is so much more heavily negotiated than a sale of a comparable set of assets.
What a share purchase agreement does to your risk
Most explanations of an SPA list its clauses. That is useful but it stops short of the thing a business owner actually needs to know, which is how each clause moves risk between the two sides. It is more useful to read an SPA as four decisions stacked on top of each other.
How much is being paid, and when. Headline price is rarely the whole story. Deferred consideration, earn-outs and retentions all leave part of the price exposed to events after completion, and each one shifts risk back onto the seller.
What the seller is promising. The warranties are a long list of factual statements about the company. Every one the seller gives is a potential claim against them. Every one the buyer fails to obtain is a risk the buyer has silently accepted.
How much those promises are worth. Warranties are only as valuable as the limitations attached to them. A full set of warranties capped at ten per cent of the price, with a twelve month claim window, is worth far less than a shorter set capped at the full price for three years.
What happens to the risks everyone already knows about. Known problems do not belong in the warranties. They belong in an indemnity, a price reduction, a retention or a condition that has to be satisfied before completion.
Read that way, the clause list below stops being a glossary and starts being a map of where your money is actually at stake.
The anatomy of a share purchase agreement, clause by clause
A typical private company SPA for an SME deal runs to somewhere between forty and a hundred and twenty pages once the schedules are attached. The main agreement is usually short. The length sits in the schedules, and in particular the warranty schedule, the tax covenant and the completion deliverables list. The table below sets out the clauses you will find in almost every SPA, what each one does, and the point within it that decides your exposure.
| Clause | What it does | Mainly protects | The point that decides your exposure |
|---|---|---|---|
| Parties and definitions | Identifies the buyer and each selling shareholder, and defines the terms used throughout the agreement. | Both | Whether the sellers are liable jointly and severally or only severally, and how terms such as “Disclosed” and “the Seller’s knowledge” are defined. |
| Sale and purchase of the shares | Obliges each seller to sell their shares with full title guarantee, free of any charge or other third party right. | Buyer | Whether pre-emption rights in the articles or a shareholders’ agreement have been waived, and whether every shareholder is signing. |
| Consideration | Sets the price and how it is paid: cash at completion, deferred instalments, an earn-out, loan notes or buyer shares. | Both | How much of the price is unconditional on the day, and what security the seller has for anything that is not. |
| Price adjustment | Either fixes the price by reference to a historic balance sheet (locked box) or trues it up after completion (completion accounts). | Depends on mechanism | Who bears the trading result between the accounts date and completion, and who prepares the figures. |
| Conditions | Lists what must happen before either side is obliged to complete, such as regulatory clearance, landlord consent or funding. | Both | Who is responsible for satisfying each condition, by when, and what happens if a condition is never met. |
| Pre-completion conduct | Restricts what the seller may do with the company between exchange and completion. | Buyer | Whether the restrictions actually cover the things that would change the value of what the buyer is paying for. |
| Completion | Sets out what each side delivers on the day, from stock transfer forms and share certificates to board resignations and bank mandates. | Both | Whether anything on the list is outside the seller’s control, and what the remedy is if a deliverable is missing. |
| Warranties | Contains the seller’s statements of fact about the company, usually in a schedule running to several hundred individual statements. | Buyer | Which warranties are given, and whether they are qualified by knowledge or by the disclosure letter. |
| Limitations on liability | Caps the seller’s exposure by amount and by time, and sets out how claims must be notified and conducted. | Seller | The cap, the claim notification deadline, the de minimis and the aggregate threshold. This is where most of the real negotiation sits. |
| Indemnities | Promises to reimburse the buyer pound for pound for a specific identified risk. | Buyer | Whether the indemnity is carved out of the general liability cap, and whether it is backed by a retention. |
| Tax covenant | Allocates the company’s tax liabilities, broadly putting pre-completion tax on the seller and post-completion tax on the buyer. | Buyer | The completion date cut-off, the exclusions, and how long the covenant runs for. |
| Restrictive covenants | Stops the seller competing with, or poaching from, the business they have just sold. | Buyer | Duration, geography and scope. Covenants drawn wider than reasonably necessary to protect the goodwill bought risk being unenforceable. |
| Confidentiality and announcements | Controls what either side may say about the deal and when. | Both | Whether the seller can tell staff, customers and suppliers, and on what timetable. |
| Boilerplate | Entire agreement, notices, assignment, third party rights, counterparts, governing law and jurisdiction. | Both | The entire agreement clause, which decides whether anything said during negotiations survives at all. |
Parties and definitions
The front end of the agreement looks administrative and is not. Where there are several sellers, whether they give the warranties jointly and severally or severally determines whether a buyer can pursue one seller for the whole of a claim or only for that seller’s proportionate share. Sellers with small holdings should expect to push hard for several liability capped at their own share of the price, and buyers should expect to resist it where the minority sellers were the ones running the business.
Definitions matter for the same reason. A warranty qualified “so far as the Seller is aware” is worth very little if awareness is defined as the actual knowledge of one person with no obligation to make enquiries. Define it as the knowledge each seller has or would have had after making reasonable enquiry of named managers and the same warranty becomes meaningful.
Consideration and the price mechanism
Consideration clauses deal with two separate questions: how much, and how certain. Cash on completion is certain. Everything else is not. Deferred consideration leaves the seller as an unsecured creditor of the buyer unless security is negotiated. An earn-out ties part of the price to the business hitting agreed targets under someone else’s management, which is why earn-out drafting generates more post-completion disputes than any other part of the price.
Separately, the agreement has to fix how the price responds to the company’s financial position at completion. Under a locked box the price is fixed by reference to a historic set of accounts and the seller gives covenants against value leaking out after that date. Under completion accounts the price is adjusted afterwards once cash, debt and working capital at completion have been measured. Neither is inherently better. The locked box gives the seller price certainty and the buyer less protection, and completion accounts do the reverse.
Conditions and completion
Many SME share deals exchange and complete on the same day, and in those cases the conditions clause is short or absent. Where exchange and completion are split, it is because something has to happen first. Common conditions include landlord consent to a change of control, consent under a key customer or supplier contract, lender consent, regulatory approval for a transfer in a regulated sector, and clearance under the National Security and Investment Act 2021.
That last one is worth a paragraph of its own, because it is routinely missed on smaller deals. The Act requires a mandatory notification where a person gains control of a qualifying entity active in one of seventeen sensitive areas of the economy, which include artificial intelligence, communications, computing hardware, data infrastructure, energy, advanced materials and transport. Control includes an increase in shareholding or voting rights past 25 per cent, 50 per cent or 75 per cent, under section 8 of the Act. The consequence of getting it wrong is severe: section 13 provides that a notifiable acquisition completed without the approval of the Secretary of State is void. It is not voidable at the buyer’s option. It simply does not take effect.
Warranties, disclosure and limitations
The warranty schedule is the longest part of most SPAs and the part most buyers skim. It is a list of statements about the company: that the accounts give a true and fair view, that the company owns its assets, that it has no outstanding disputes, that it complies with its regulatory obligations, that its contracts are in force, that there are no undisclosed employee claims, and several hundred more. A warranty is a contractual promise, so a breach gives rise to a damages claim measured by the difference between the value of the company as warranted and its actual value.
Against that, the seller produces a disclosure letter. Anything properly disclosed in it cannot later be the subject of a warranty claim, which is why the disclosure exercise is the most important thing a seller does in the whole transaction. We explain how that works in practice in our guide to disclosure letters and how sellers limit their liability.
The limitations clause then puts a ceiling on everything. A typical structure has four layers: a de minimis, so individual claims below a small figure are ignored; an aggregate threshold or basket, so claims are only recoverable once they add up to a larger figure; a financial cap, often expressed as a percentage of the price for general warranties and the full price for title and capacity warranties; and time limits, commonly twelve to twenty four months for general warranties and longer for tax. Where the agreement is executed as a deed, section 8 of the Limitation Act 1980 would otherwise allow twelve years to bring a claim, against six years for a simple contract under section 5, so a seller who does not negotiate a contractual time limit is exposed for a very long time.
Indemnities and the tax covenant
Warranties deal with the unknown. Indemnities deal with the known. If due diligence has turned up a live employment tribunal claim, a planning irregularity or an unresolved HMRC enquiry, the buyer will not accept a warranty that the problem does not exist, because it plainly does. Instead the buyer asks for an indemnity: a promise to reimburse, pound for pound, whatever that specific issue ends up costing. The practical difference is that an indemnity claim does not require the buyer to prove loss of value in the shares, and is usually drafted to sit outside the general liability cap. We go further into the distinction in our article on warranties and indemnities in a business sale.
The tax covenant, sometimes still called the tax deed, is a specialised indemnity. It allocates the company’s tax liabilities by reference to the completion date: in broad terms, tax arising from anything the company did before completion is the seller’s, and anything after is the buyer’s. It is a separate document or schedule because tax liabilities behave differently from other liabilities, surfacing years later and often without any breach of warranty having occurred. The tax position of a share sale is also where the seller’s own exposure sits, including capital gains tax on the disposal and any relief that may apply to it. We set out the legal structure, but the figures belong with your accountant or tax adviser, and we always recommend getting that advice before the price mechanism is agreed rather than afterwards.
Restrictive covenants and boilerplate
A buyer paying for goodwill needs the seller not to walk out and rebuild the same business next door. Restrictive covenants in an SPA are given more latitude by the courts than the equivalent clauses in an employment contract, because the seller has been paid for the goodwill they are agreeing to protect, but they still have to go no wider than is reasonably necessary. Covenants drafted to cover every activity the buyer might conceivably pursue, anywhere, for five years, risk being struck down in their entirety, leaving the buyer with nothing.
The boilerplate at the back deserves one specific mention. The entire agreement clause provides that the written contract is the whole of what was agreed, which means statements made during negotiations, in the information memorandum or in a management presentation generally cannot be relied on unless they were converted into a warranty. Sellers want it in. Buyers should read it alongside the warranty schedule and ask whether anything they were told but never wrote down has just evaporated.
What sellers negotiate hardest
Acting for sellers, the clauses that absorb the most time are consistent. Sellers push hardest on the limitations package, because it is the only thing standing between them and open-ended exposure after they have left the business. The cap, the time limits and the de minimis are usually settled together as a package rather than individually.
Next comes the warranty list itself. A seller who has not run the company day to day, such as a passive shareholder or an executor, has a strong argument for giving title and capacity warranties only. Sellers also resist warranties about matters that are inherently unknowable, such as the future conduct of third parties, and press to qualify operational warranties by awareness.
Third is certainty of payment. Any deferred element, earn-out or retention is money the seller may never see, so sellers negotiate for security, for a short retention period, for clear and objectively measurable earn-out targets, and for protections against the buyer running the business in a way that makes those targets unreachable.
Fourth is the scope of the restrictive covenants, particularly where the seller intends to stay active in the same sector in some form after the sale. That conversation is far easier before heads of terms are signed than after. Our wider legal guide to selling a business covers how the whole process fits together.
What buyers negotiate hardest
Buyers start from the opposite end. The first priority is the breadth of the warranties, because every gap in the schedule is a risk the buyer has agreed to carry without knowing it. A buyer’s solicitor will work from the due diligence findings outwards, adding warranties aimed at the specific areas where the information received was thin.
The second is the disclosure standard. Buyers resist general disclosure of everything filed at Companies House or sitting in the data room, because it makes the warranties close to worthless. The usual compromise is that only matters fairly disclosed, with sufficient detail to allow the buyer to assess the nature and scope of the issue, qualify the warranties.
The third is indemnity cover for the specific problems diligence has identified, backed where possible by a retention from the price rather than an unsecured promise. The fourth is the conditions and the completion deliverables, in particular making sure every consent the company actually needs has been identified before the buyer is committed. Our step-by-step guide to buying a business sets out that sequence in full.
What happens at completion and immediately afterwards
Signing the SPA is not the end of the process, and several of the steps that follow carry deadlines that are easy to miss.
- Stock transfer forms are executed for each selling shareholder and the share certificates are handed over.
- A board meeting of the company approves the transfers, accepts the resignations of outgoing directors and appoints the buyer’s nominees.
- Stamp duty is paid at 0.5 per cent of the consideration, rounded up to the nearest £5, on any transfer where the consideration is more than £1,000. HMRC requires the stock transfer form to be sent to it and the duty paid within 30 days of the form being signed and dated.
- Once the form is stamped, the company registers the transfer and updates its register of members. Section 771 of the Companies Act 2006 requires the company either to register the transfer or to give the transferee notice of refusal with reasons, as soon as practicable and in any event within two months.
- The register of people with significant control is updated, and the changes to the share capital and directors are filed at Companies House.
- New directors and any new person with significant control complete Companies House identity verification. This became a legal requirement on 18 November 2025 and now applies to directors, equivalent officers and people with significant control.
One thing that does not happen on a share sale is a TUPE transfer. Because the company remains the employer, there is no change of employer and the Transfer of Undertakings (Protection of Employment) Regulations 2006 are not engaged. Employees’ contracts carry on unchanged. That is a genuine simplification compared with an asset deal, though it is also why buyers need the employment warranties to be thorough: the buyer inherits every existing liability to staff along with the company.
What commonly goes wrong
The problems we are asked to deal with after completion fall into a small number of recurring patterns.
- Not every shareholder signed. A forgotten minority holder, a shareholding held on trust, or shares issued years ago and never properly documented will stop the buyer acquiring the whole of the issued share capital. This is a due diligence failure that surfaces at the worst possible moment.
- The disclosure letter was done in a hurry. Sellers who leave disclosure to the last week end up disclosing too little, and face warranty claims that proper disclosure would have barred entirely.
- Earn-out targets that are not objectively measurable. “EBITDA” means whatever the agreement says it means. If the definition is not spelled out, including which costs the buyer may allocate to the business after completion, a dispute is close to inevitable.
- Change of control consents missed. Key customer contracts, equipment leases, banking facilities and property leases frequently contain change of control provisions. A share sale does not avoid them.
- Claim notification deadlines missed. Limitation clauses usually require written notice of a claim within a fixed period and in a prescribed form. Buyers who discover a problem in month 23 of a 24 month window and spend six weeks investigating before notifying can lose the claim on a technicality.
- Restrictive covenants drawn too wide. A covenant that goes further than is reasonably necessary to protect the goodwill acquired can fail completely, which leaves the buyer worse off than a narrower clause would have.
Why a downloaded template is rarely enough
A lot of people searching for a share purchase agreement end up on a template site, and it is worth being straight about what a template can and cannot do. A template gives you the clause headings and a workable structure, and for a transfer of a small holding between two people who already know each other well, with cash paid on the day and no warranties, it may genuinely be enough.
What it cannot do is any of the work that actually protects you. A template cannot tell you which warranties matter for this company, because that comes out of the due diligence. It cannot tell you where the cap should sit, because that is a function of the price, the risk profile and what the other side will accept. It cannot draft the disclosure letter, which is the seller’s main protection and has to be built from the company’s own records. It cannot identify the consents this deal needs, or spot that the target falls inside a National Security and Investment Act sector, or tell you whether the shares are even capable of being transferred without first dealing with pre-emption rights in the articles.
Put at its simplest, the document is not the protection. The protection is the allocation of risk that the document records, and a template has no way of knowing what the risks are. The cost of getting that wrong is almost always larger than the cost of getting it drafted properly, which is why we would rather have a short conversation about the shape of a deal early than review an executed agreement afterwards.
Talk to us about your share purchase agreement
We act for buyers and for sellers on share transactions, from single shareholder exits to full acquisitions of owner-managed companies, and we are often instructed by both sides of the same sector in different deals. That means we can tell you quickly whether a position being pushed at you is market standard or opportunistic. Our corporate team handles the whole transaction in-house, including the mergers and acquisitions work, the management buy-out and buy-in structures, and the shareholders’ agreements that often need updating once new owners are in place.
If you are preparing to sell, our selling a business solicitors can take you through what buyers will ask for and what you should settle before heads of terms. If you are acquiring, our buying a business solicitors will run diligence and draft the agreement around what it finds. Sector-specific deals are a particular focus for us, and our articles on buying a dental practice, practice due diligence and practice buy-ins show how the same principles apply in a regulated setting.
To talk through a share purchase agreement before you sign it, call us on +44 207 566 1188 or email info@gurvelegal.com. An early conversation usually costs very little and saves a great deal.
