Share Purchase Agreement UK: Key Clauses & Process

What this document is

A share purchase agreement is a contract under which one party agrees to transfer shares in a company to another party in exchange for a price. Because the buyer is acquiring the company through its shares rather than buying individual assets, everything inside the company comes along with the deal: the contracts, the employees, the tax history, the pending disputes, the lot.

That is a very different position from an asset purchase, where the buyer can cherry pick what they want. SPAs are used in full company sales, partial sales, management buyouts, private equity deals, and investment rounds where new or existing shares change hands.

The document itself brings together the commercial bargain (price, timing, conditions) with a long list of protective mechanisms (warranties, indemnities, restrictive covenants) that allocate risk between the parties. In a small deal the SPA may run to thirty pages. In a larger transaction it can easily exceed a hundred, with schedules and a disclosure letter sitting alongside it.

The balance of negotiation usually turns on how much risk the buyer is prepared to accept on trust and how much the seller is willing to stand behind after completion.

How to use this document

1. Agree heads of terms. Before lawyers start drafting, the parties usually sign a short heads of terms or letter of intent covering price, structure, exclusivity and timing. This document is often largely non-binding, but it anchors the commercial deal and saves time and cost when the full SPA is drafted. Getting the heads right is worth the effort.
2. Carry out due diligence. The buyer investigates the target company through legal, financial, tax and commercial due diligence. This is where hidden liabilities, problem contracts, employment issues and tax exposures come to light. Findings from due diligence feed directly into the SPA, often appearing as specific indemnities, price adjustments or conditions to completion.
3. Negotiate the SPA and disclosure letter. Drafts of the SPA pass between the parties while the seller prepares a disclosure letter. The disclosure letter qualifies the warranties by setting out matters that would otherwise breach them. The interplay between warranties, disclosures and indemnities is where most of the legal negotiation happens, and where buyer and seller interests pull hardest in opposite directions.
4. Signing and any conditions to completion. The SPA is signed by both parties. In a straightforward deal, signing and completion happen on the same day. Where consents are needed, such as regulatory approvals, landlord consents or third party contract change of control waivers, signing and completion are split, with completion taking place once the conditions are satisfied.
5. Completion and post-completion steps. On completion, the purchase price is paid, stock transfer forms are executed, and board resolutions are passed to register the new shareholders. Stamp duty is usually payable by the buyer on the stock transfer forms where the consideration exceeds the threshold. Post-completion, the buyer files changes at Companies House and deals with any agreed earn-out, retention or escrow arrangements.

Common questions