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How to make a Share purchase agreement

Finalise terms relating to the sale and purchase of shares using this share purchase agreement. Under this share purchase agreement, you take all of a company's assets and liabilities, unlike an asset purchase agreement, where you take only what is specifically identified in the agreement. Use this share purchase agreement to set out the agreed elements of the deal, including the amount being paid for the shares and the closing details of the transaction.

Use this share purchase agreement if you want to:

  • sell or buy the entire share capital in a company 

  • formalise the share sale in an agreement 

  • include restrictions on the seller after the share sale

As a share buyer, use this agreement to make sure the seller enters into some contractual promises about the company which will continue to bind them after the sale.

This share purchase agreement covers:

  • details of the target company

  • the purchase price for the shares

  • when completion of the agreement will take place

  • warranties made by the seller and buyer

  • representations made by the seller and buyer

  • limitation on liability

  • restrictions on the seller post-completion

  • notices

  • confidentiality

A share purchase agreement (SPA), also known as a 'stock purchase agreement' or 'share transfer agreement', is an agreement setting out the terms and conditions relating to the sale and purchase of shares in a company. 

A share purchase agreement is not the same as an asset purchase agreement, where it's just the assets that are being bought as opposed to the whole operating business of the target company.

For more information, read Share purchase agreements

A share purchase agreement helps finalise all the agreed terms and conditions of the sale of the shares in a company. 

A share purchase agreement can be necessary to ensure that the parties are aware of any representations or warranties made about the target company. Once a buyer has purchased the shares in a company, they are also buying all the obligations and responsibilities of the company, including potential debts or liabilities. 

Warranties are a statement of fact, or promises, that each party gives to assure the other that certain conditions are true. Warranties are particularly important in any share purchase agreement as they reduce the risks in a share sale for the buyer. 

One of the main aims of the warranties is to provide the buyer with a potential remedy if a statement about the target company turns out to be untrue, which can change the true value of the target company.

Warranties can highlight any information which the buyer ought to know and which could affect the value of the company, or even the buyer’s decision to buy the business. It also acts as an information-gathering mechanism for the buyer and assists in any due diligence prior to completing the share sale to give the buyer some comfort in the event that the business is not as the seller represented to them, eg the company may have some hidden problem or litigation.

If a warranty turns out to be untrue, for example, a warranty that the target company is not currently in any litigation, then this can result in a successful claim for damages. The buyer will need to show that the breach of warranty resulted in a substantial loss (ie a reduction in the value of the target company).

For further information, read Warranties in share purchase agreements.

The law does not provide much protection for buyers and sellers in a commercial context (ie in business transactions). There is a well-known principle of 'caveat emptor' (or buyer beware) which states that it is the buyer's obligation to know all the facts and details of what they are buying. 

Therefore, buyers would seek to protect themselves by obtaining all the information about the company and receiving assurances from the seller, relating to the assets and liabilities of the target company. Therefore, these are very important provisions in most, if not all, share purchase agreements. 

Ask a lawyer if you need assistance understanding any warranties contained within this agreement.

A disclosure letter gives the seller the opportunity to make ‘disclosures’ against the warranties which the buyer will require the seller to give. 

The seller can make two types of disclosures:

  • general disclosures which cover certain matters that appear in public records and/or of which the buyer ought to be aware on the basis of pre-contract enquiries or searches actually made, or which a buyer would normally make. These will be automatically included in the letter. 

  • specific disclosures which cover anything that if not disclosed, would constitute a breach of warranty. The specific disclosures should be made by reference to the warranties themselves. These will be for you to include after you have created the document. Ask a lawyer if you have any questions about how to draft these. 

Note that if a seller makes inadequate disclosures, it may face a breach of warranty claims, which could allow the buyer to recover some or even all of the purchase price.

The consideration is the purchase price payable by the buyer for the shares in the target company. When completing a share sale it's important that the true value of the target company is reflected in the agreement. It's usual for the parties to obtain a valuation of the target company through completion accounts and references to annual and management accounts. This allows for the purchase price to be adjusted in the event that the value of the target company changes. 

The buyer to a share sale may want to impose restrictions on the seller after the sale is completed. Typical restrictions include the seller agreeing to not be involved in any competing business and non-solicitation of customers, suppliers and employees of the target company. These are included to protect the buyer and the target company. A buyer will want to ensure that the seller doesn't do anything after completion of the sale that could adversely affect the value of the target company. 

However, it's important to ensure that the restrictions are reasonable and are not a restraint of trade, in order for them to be enforceable. Therefore the restrictions should be limited in terms of scope (both geographically and functionally) and time. The usual duration is between one to five years.

For further information, read Non-solicitation and restrictive covenants.

Limitation of liability clauses limit the amount one party has to pay the other party if they suffer loss because of a breach of contract between them. It is usual for a seller to limit its liability under the agreement, specifically in relation to the warranties, and this is usually accepted by the buyer.

For further information, read Limitation of liability clauses.

If the buyer buys a company by means of a share sale and purchase, the buyer takes on the shares in the target company. The buyer will acquire the target company with all its assets and liabilities. A share sale can be more straightforward than an asset sale, although extensive due diligence will need to be done into any liabilities that will come with the company being purchased. On an asset sale, any liabilities will generally be left behind with the target company from which the assets are purchased.

If a buyer buys a business as a going concern by means of an asset sale and purchase, all the individual assets of the business concerned will be transferred to the buyer together with the goodwill of the business. This means that the buyer can decide which assets in the target company it will purchase, and can leave behind any liabilities such as debts and pending litigation. ​​​​​​

Generally, shareholders (ie members) have a right to transfer or sell their shares to whomever they want. However certain provisions in the Article of Association may restrict this right where there is a provision that the board of directors should have the power to refuse the register of shares or a pre-emption clause which obligates a member to first offer to sell their shares to other specified members or directors.

In this case, you should check your articles of association or Ask a lawyer if you require assistance in reviewing your documents.

Following completion (singing of the agreement), there are a few steps the buyer will need to take:

  1. payment of stamp duty

  2. filing notices of directors’, secretaries’ and auditors’ appointments and resignations at Companies House, and

  3. integration of the target company into the buyer’s group, including VAT, payroll, etc

A share purchase agreement itself is a private document and there is no requirement to file it with Companies House. However, you should notify Companies House of the change of share ownership in the target company’s next annual return.

Ask a lawyer for:

  • advice if you're unsure of the warranties being made

  • advice if you're unsure of the restrictions being imposed on the seller

  • advice if you need help with due diligence

  • advice if you need help making a disclosure

  • advice on drafting bespoke terms in a share purchase agreement

  • tax considerations when buying shares

  • advice if the target company is based outside of England, Wales or Scotland

This share purchase agreement is governed by the law of England, Wales or the law of Scotland.

Other names for Share purchase agreement

Share sale contract, Share purchase template, Selling company shares contract, Stock purchase agreement.