Share purchase agreement

Also called SPA, Asset purchase agreement, APA

The document that actually sells the business, and where the risk you keep is decided.

What it means

A share purchase agreement transfers the shares in a company, so the buyer takes the company with everything in it — assets, contracts, employees and liabilities. An asset purchase agreement transfers specified assets instead, leaving liabilities behind with the seller's company.

Which structure is used has large tax and risk consequences for both sides, and they usually pull in opposite directions.

Why it matters

Most of the negotiation after the term sheet is about warranties, indemnities and how much of the price is deferred or conditional.

A seller can complete a sale and still lose a large part of the proceeds afterwards through a warranty claim, an earn-out that is not met, or a retention that is never released.

What it looks like in practice

The provisions to focus on: the warranty cap and time limits, the disclosure letter, any retention or escrow, earn-out mechanics and who controls the business during the earn-out period, and restrictive covenants on the seller.

Warranty and indemnity insurance is available and increasingly common even on mid-sized deals.

On an asset sale, TUPE will usually transfer the employees automatically.

What to watch out for

Earn-outs where the buyer controls everything the target depends on. If the earn-out is measured on profit and the buyer allocates central costs to the business, the target moves.

Restrictive covenants that are wider or longer than you intend to accept.

Where to get proper advice

A corporate solicitor and a tax adviser, engaged before the heads of terms are signed.