Share Purchase Agreements

What is a Share Purchase Agreement?

A Share Purchase Agreement (SPA) is a legal agreement detailing the terms and conditions of a share transfer. Share transfers involve selling a company's shares to a new buyer. The new buyer becomes the company's shareholder and, in most cases, the company's new director; responsibility is passed from the seller to the buyer.

What are SPA warranties?

SPA warranties are an integral part of all SPAs. They are contractual 'promises' made by the seller to protect the seller from any harm that may arise as a result of mistakes made by the seller, such as a failure to disclose important information that may have affected the buyer's decision to buy the company. The warranties serve to assure the buyer that the seller is behaving honestly, and to provide security should it be later be revealed that the buyer was misinformed. To protect himself, the seller may issue a disclosure letter, thereby absolving himself of any responsibility should the buyer experience issues post-transaction.

What is an indemnity?

When it comes to SPAs, the onus is on the buyer to behave diligently and identify any potential liabilities before sale proceedings commence. If a liability is revealed prior to the transfer completing, the buyer is entitled to seek an indemnity agreement from the seller. An indemnity is a promise made by the seller to cover any losses that are incurred as a result of the liability on a pound-to-pound basis.

What is a restrictive covenant?

Restrictive covenants are designed to protect the interests of the buyer by restricting the seller's activity for a short time after the sale has completed. Clauses include in restrictive covenants include non-solicit and non-compete clauses.


Non-solicit clauses prohibit sellers from poaching the staff, suppliers or customers of their former business for a limited time after the sale completes.


Non-compete clauses forbid sellers from starting up any new businesses that would directly compete with their former businesses. If the seller were to set up a new business, it is likely that the buyer's business would be affected by the emergence of competition in the market.

All restrictive covenants must be legally reasonable in order to be enforced; this means they must last for a limited amount of time (usually around six months) and not impede the seller's right to trade.

What are the advantages of a Share Purchase Agreement over an Asset Purchase Agreement?

SPAs differ from APAs in that they document the transfer of non-tangible shares rather than physical assets such as fixtures, fitting, equipment and premises. With an SPA, ownership of the company is passed to the shareholder, but ownership of the assets remain with the company. This is because companies are considered to be separate legal entities to their buyers. The fact that assets aren't involved means third parties don't have to be involved, a Share Purchase a faster type of transfer than an Asset Purchase. For sellers, a major advantage of a SPA is that it absolves the seller of all responsibility for the company's debts. Once the transfer has completed, the company's debts become the responsibility of the buyer, freeing the seller of all liability for the debts that were incurred during his ownership. This is not the case with APAs; with an APA, sellers retain liability for the company's debts unless they can persuade the buyer to buy the debt with the business.

Why does a Share Purchase Agreement require the input of a solicitor?

Share Purchase Agreements are technically and legally complicated. They include a number of legal clauses, such as intricate warranties, indemnities and restrictions, all of which should be drafted by a qualified legal professional. For buyers, it is extremely important that all warranties expressed in the agreement are worded clearly and unambiguously.

Sellers can also benefit from the help of a solicitor. Solicitors can use their legal knowledge to help draft indemnity letters which will protect the sellers' interests in the event of a warranty breach.

How can Pabla & Pabla Solicitors help?

Our team of qualified legal professionals have overseen the signing of numerous Share Purchase Agreements and have the experience required to help you get the most out of your Share Purchase Agreement. Whether you are a seller or a buyer, our commercial solicitors can work with you to create a legally binding agreement in a time frame that is stipulated by you. Contact us today to speak to a professional

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