Share Purchase Agreements Explained: A UK SME Owner's Guide to the SPA

By Tony Vaughan, Founder, BusinessWanted.com · Last reviewed 13 September 2026

This guide is written for owners of UK private companies who are selling, or expect to sell, and for acquirers who want to understand what the other side of the table is being asked to sign. It explains the share purchase agreement clause by clause, in plain English, from the perspective of what each provision does commercially rather than how it is drafted legally.

It is BusinessWanted.com commercial analysis. It is not legal, tax or regulated financial advice, and it is not a substitute for a solicitor. Every SPA turns on its own facts, its own drafting and the specific risks of the company being sold. Nothing here should be relied on in place of advice from your own corporate solicitor and tax adviser.

What a share purchase agreement is

A share purchase agreement is the contract under which the shareholders of a company sell their shares to a buyer. When the shares complete, the buyer owns the company: its assets, its contracts, its staff, its customers and, critically, its entire history, including liabilities nobody has yet discovered. The SPA exists because the buyer is taking on that history, and both sides need a binding record of what was promised about it and who pays if a promise turns out to be wrong.

The key takeaway is that the SPA is a risk-allocation document as much as a sale document. The price clause says what is being paid. Almost everything else in a typical SPA, which often runs to 60 pages or more before schedules, is about who bears which risk, for how long, and up to what limit.

It is worth being precise about where the SPA sits in the sequence of a deal. The typical order is: heads of terms (also called a letter of intent), which record the outline deal and are usually not legally binding except on confidentiality and exclusivity; due diligence, in which the buyer investigates the company; then negotiation of the SPA and its disclosure letter; then exchange and completion, which in many SME deals happen simultaneously.

One common confusion is worth clearing up at the outset, because it appears constantly in owner conversations. A share purchase agreement is not the same thing as a shareholders' agreement. A shareholders' agreement governs the ongoing relationship between people who own shares together. A share purchase agreement ends that relationship: it is the document by which the sellers leave and the buyer arrives.

Share sale versus asset sale

Not every company sale uses an SPA. Where the buyer acquires selected assets and contracts rather than the shares, the equivalent document is an asset purchase agreement or business transfer agreement. The distinction matters because it changes what the buyer inherits and what the seller keeps.

In practice, the choice between a share sale and an asset sale is driven by tax, the state of the company's history, and what the buyer is prepared to underwrite. Sellers of trading UK SMEs usually favour a share sale. Buyers sometimes push for an asset purchase where they are concerned about historic liabilities, for example unresolved tax exposure or potential claims. The choice affects everything else in this guide, so it should be settled with advisers before heads of terms are signed.

The anatomy of a share purchase agreement

A useful analogy is buying a house compared with buying the company that owns the house. When you buy a house you can survey it, insure it and walk away from most of its past. When you buy the company that owns the house, you inherit everything the company has ever done: the extension built without planning consent, the dispute with the neighbour, the unpaid supplier invoice from three years ago. The SPA is the mechanism by which the seller of that company answers for its past.

Every SPA is negotiated individually, but a typical UK private-company SPA contains the same family of provisions. What follows is the commercial purpose of each, in the order an owner is most likely to encounter them.

Parties, recitals and definitions

The opening sections identify who is selling, who is buying and what is being sold. Where there are several shareholders, all of them are usually parties, and the buyer will typically insist that every share is sold so that no minority interest survives completion. The definitions section looks like boilerplate but is not: defined terms such as "Accounts", "Business Day" and "Warranties" control how the operative clauses behave, and small definitional changes can materially shift risk.

The sale and price clauses

These clauses state that the sellers sell and the buyer buys the shares, and set out the consideration. The critical point for an owner is that "the price" is rarely a single fixed number. It is usually a base figure adjusted by a mechanism, paid in several possible forms: cash on completion, deferred instalments, loan notes, or an earn-out linked to future performance. Each form changes what the seller actually receives, when, and with what risk.

Cash on completion is the only certain money. Deferred consideration depends on the buyer still being willing and able to pay. Loan notes are only as good as the credit behind them. An earn-out depends on future performance that the seller may no longer control. Two offers with the same headline figure can be worth very different amounts once the payment structure is priced honestly.

Conditions precedent

Where exchange and completion do not happen on the same day, the SPA will list conditions that must be satisfied before completion: regulatory approvals, consent of a key customer or landlord, or the release of existing security. For the seller, each condition is a point at which the deal can legitimately fail, so the list should be short, objective and within someone's power to satisfy. Long or vague condition lists transfer deal certainty from seller to buyer.

Warranties

Warranties are statements of fact about the business that the sellers give to the buyer: that the accounts give a true and fair view, that the company owns its assets, that there is no undisclosed litigation, that tax affairs are in order, that key contracts are valid, and so on through every material aspect of the company. A typical SME SPA contains dozens of warranties, often running to many pages.

The primary rule here is that warranties do two jobs at once. They flush out information, because a seller who cannot give a warranty must disclose against it, and they allocate risk, because if a warranted statement proves untrue and the company is worth less as a result, the buyer can claim the difference. The buyer's remedy for breach of warranty is generally damages: the amount by which the company is worth less than it would have been had the warranty been true.

For a seller, the important controls on warranty exposure are: the disclosure letter (covered below); the financial caps and de minimis thresholds on claims; the time limits within which claims must be brought; and, increasingly in UK SME deals, warranty and indemnity insurance, where a policy takes over part of the risk so the seller can make a cleaner exit.

Indemnities

An indemnity is a promise to reimburse the buyer, pound for pound, for a specific identified risk: for example a known tax enquiry, a pending employment claim, or the cost of remediating a particular property issue. Where warranties deal with the general state of the business, indemnities deal with named problems that diligence has already found.

The commercial difference matters. A warranty claim requires the buyer to prove the statement was untrue and that the company lost value. An indemnity claim simply requires the specified event to occur and the loss to follow; there is generally no need to prove a drop in the company's value, and the usual duty to mitigate may be softened or removed depending on drafting. Sellers should resist turning general warranties into indemnities, and should expect to negotiate hard over every specific indemnity: its trigger, its cap and its duration.

The tax covenant

Most UK share sale SPAs include a separate tax covenant or tax deed, under which the sellers agree to cover the company's historic tax liabilities that were not provided for in the accounts. The logic is that the company's tax history belongs to the sellers' period of ownership. Tax covenants are technical documents with their own claim mechanics and time limits (commonly aligned with the periods HMRC can assess), and they deserve specialist attention rather than being treated as part of the standard wording.

Restrictive covenants

Restrictive covenants stop the sellers from immediately competing with the business they have just sold: typically non-compete, non-solicitation of customers and non-poaching of staff, for a defined period and within a defined area or market. Buyers paying goodwill for a business will insist on them. For the seller the points to negotiate are scope and duration: covenants should be no wider than the business actually sold, and long restrictions can constrain what a serial entrepreneur does next. Courts only enforce covenants that go no further than reasonably necessary to protect the buyer's legitimate interest, but no seller should rely on a covenant being unenforceable; it is far better to narrow it at the drafting stage.

Completion mechanics and completion accounts

The completion clause lists what happens on the day the shares transfer: delivery of share transfers and resignations, board meetings, release of charges, payment of the price. Alongside it sits one of the two standard pricing mechanisms.

Under completion accounts, the price is estimated at completion and then trued up against accounts drawn up for the completion date, typically measuring net assets, debt and working capital against an agreed target. This protects the buyer against value leaking out between the last accounts and completion, but it creates a post-completion negotiation in which definitions and accounting policies decide real money. Under the locked box mechanism, the price is fixed by reference to a historic balance sheet date, the seller covenants that no value has leaked out of the business since that date, and there is no post-completion adjustment. Locked boxes give sellers price certainty and a cleaner exit; completion accounts give buyers protection against trading movement. Which one applies is a commercial negotiation point, and the detail of the definitions matters more than the label.

The disclosure letter

The disclosure letter is the seller's counterweight to the warranties. In it, the sellers formally disclose specific facts that qualify the warranties: for example, disclosing the existence of a dispute means the buyer cannot later bring a warranty claim for that disclosed matter. The general rule in UK practice is that only matters fairly disclosed, with enough detail for the buyer to understand their nature and scope, will protect the seller.

Owners sometimes treat disclosure as an admission of failure. It is the opposite. Thorough, accurate disclosure, prepared methodically with your solicitor, is the single most effective protection a seller has against post-completion warranty claims. A deal in which everything material has been disclosed and priced is far safer for a seller than one with unqualified warranties resting on hope.

Limitations on claims

The limitations clause caps the seller's exposure: an overall cap on warranty claims (often negotiated as a percentage of the price, sometimes the full price), a minimum threshold below which individual claims cannot be brought, an aggregate basket below which claims are ignored, and time limits (commonly shorter for general warranties, longer for tax). These numbers are as much a part of the price negotiation as the headline figure. A slightly lower price with tight caps and a clean exit can be worth more to a seller than a higher price with open-ended exposure.

Where the money moves: a practical blueprint for sellers

The SPA stage of a deal is where preparation either pays off or its absence becomes expensive. The sequence below is the order in which we would expect a well-advised owner to approach it.

To make this concrete, consider an illustrative example. Picture a fictional East Midlands engineering business turning over around £6 million, owned by two shareholders approaching retirement. The agreed price is £5 million on a cash-free, debt-free basis with a normalised working capital target. Under a completion accounts structure, the completion statement shows working capital £180,000 below the target and a debt-like item the sellers had not anticipated, an accrued holiday pay liability of £60,000, both of which reduce the price. The sellers also gave a three-year non-compete drafted broadly enough to cover adjacent markets they had hoped to enter with a new venture, and a specific indemnity for a historic VAT position that cost them £40,000 when HMRC assessed it a year after completion.

None of those outcomes was inevitable. A locked box would have fixed the price at the balance sheet date. A tighter working capital definition, agreed before exchange, would have avoided most of the adjustment. A covenant scoped to the actual market of the business sold would have preserved the new venture. And the VAT position, properly disclosed and priced in negotiation, might have been reflected in the price rather than carried as an open indemnity. This example is fictional and illustrative, but every element of it reflects patterns that recur in real UK SME transactions.

Exchange, completion and the gap in between

Some SPAs are signed and completed on the same day: the parties exchange contracts, the money moves and the shares transfer in a single sitting. Others split the transaction into exchange and completion, with a gap of days, weeks or occasionally months between the two. Which structure applies matters to a seller, because the gap is a period of legal commitment without economic certainty.

Where there is a gap, the SPA will contain conditions precedent: events that must occur before completion is obliged to happen. In UK SME deals the common ones are regulatory consents, landlord or customer consents to a change of control, the release of existing security or personal guarantees, and sometimes buyer financing. Until every condition is satisfied or waived, neither side can be made to complete. A seller should read the conditions precedent list as a list of ways the deal can still die after the champagne moment of exchange.

Three protections are worth negotiating where a gap exists. First, a longstop date: a fixed date after which either party can walk away if conditions remain unsatisfied, so the seller is not locked in limbo while a buyer works through its own timetable. Second, conduct of business obligations: covenants from the seller to run the company in the ordinary course between exchange and completion, which should be drawn narrowly enough that normal trading decisions do not accidentally breach the contract. Third, clarity on who bears the risk of a material adverse change in the gap. A well-drafted SPA is explicit about what happens to the obligation to complete if trading deteriorates between exchange and completion, rather than leaving it to implication.

Completion itself is a mechanics exercise, and the SPA sets it out in a schedule. The seller delivers share transfers, stock transfer forms, resignations of outgoing directors, company books and statutory registers; the buyer pays the price in the agreed form. Completion accounts, where used, are prepared after completion and then argued over. The practical point for sellers is that completion deliverables are contractual obligations: a missing consent or an unsigned form can put a seller in breach on the very day the deal is meant to close. A completion checklist agreed weeks in advance is unglamorous but cheap insurance.

Retentions, escrow and deferred consideration

Not all of the price arrives on completion day. Buyers commonly hold back part of the consideration, and the SPA defines exactly how, when and whether the seller ever receives it. The main structures are a retention, where the buyer simply keeps back a slice of the price for a period; an escrow account, where the money is held by a third party under agreed release rules; and deferred consideration, where payment is contractually due later but remains the buyer's credit risk.

The commercial purpose of a holdback is to give the buyer a ready fund against which warranty or indemnity claims can be set off. That is legitimate, but the detail decides whether it is a modest security arrangement or an open invitation to manufacture claims before the release date. A seller should check the size of the holdback against the realistic exposure it is securing, the release date and whether release is automatic or subject to conditions, the claims process that allows the buyer to withhold, and what interest, if any, the escrow earns while it sits there.

Deferred consideration and earn-outs carry a sharper risk: the seller becomes, in effect, an unsecured creditor of the buyer. If the buyer's group fails before payment, the deferred element can be lost entirely. Protections worth asking for include security over the shares or assets sold, parent company guarantees where the buyer is part of a group, and acceleration clauses that bring payment forward if the buyer's financial position deteriorates. Where an earn-out is involved, the measurement basis belongs in the SPA with precision: which accounting policies apply, who prepares the accounts, what happens to discretionary costs loaded into the business during the earn-out period, and how disputes are resolved. An earn-out measured on profit that the buyer's management controls is not a price; it is a promise.

The common thread is that the headline price in an SPA is a starting point, not a number to bank. What a seller actually receives depends on the completion mechanism, the holdback terms and the credit quality behind any deferred element. These clauses deserve the same negotiating energy as the figure at the top of the term sheet, because they change that figure in practice.

A simple worked example shows why. An owner who agrees a price of three million pounds with ten per cent held in escrow for eighteen months, a further slice deferred over two years and an earn-out measured on profit the buyer controls does not have a three million pound deal in any certain sense. The owner has a guaranteed sum on completion, a secured or unsecured promise for the rest, and a set of contractual tests that decide whether the balance ever arrives. Valuing those pieces separately, and negotiating each one, is where experienced sellers protect the real number.

What the SPA tells you about the buyer

The key takeaway is that the first draft of an SPA is a diagnostic document. It shows how a buyer intends to treat risk, and therefore how the rest of the deal will feel. A buyer whose opening draft loads the seller with uncapped indemnities, sweeping covenants and an aggressive working capital target is signalling a negotiating style, and often a diligence style, that an owner should factor into whether this is the right counterparty, not just the right price.

This is where the structure of demand matters before the SPA ever arrives. An owner negotiating with a single opportunistic buyer has limited room to push back on one-sided drafting, because the alternative is no deal. An owner with more than one credible, qualified acquirer in the picture can hold the line on caps, disclosure and covenants because the buyer knows the seller has somewhere else to go. In our experience of buyer behaviour on the BusinessWanted.com register, the acquirers with a clear strategic rationale for a specific sector tend to negotiate toward a deal they intend to complete; the quality of the buyer, established early, is the best predictor of how reasonable the SPA stage will be.

Price negotiation and SPA negotiation are also the same negotiation. A buyer who cannot move on price will sometimes move on structure, caps or covenants, and vice versa. Owners who understand what each clause is worth can trade deliberately instead of conceding accidentally.

Common negotiation flashpoints

• Cap on warranty claims. Buyers open high; sellers should anchor low, with the cap reflecting the realistic exposure rather than the full price by default.
• Survival periods. General warranties commonly survive for a shorter negotiated period; tax matters for longer, aligned with HMRC assessment windows.
• Specific indemnities. Each one should have a defined trigger, a cap and a sunset. Open-ended indemnities should not survive negotiation.
• Working capital target in completion accounts. The definition of "normal" decides real money; it must be built from the company's own trading pattern, not a template.
• Earn-out terms. Measurement basis, who controls the business during the earn-out, and dispute mechanics matter more than the headline percentage.
• Restrictive covenants. Duration, geography and scope should match the business actually sold, and nothing wider.
• Warrantors. Where there are multiple sellers, whether liability is joint and several, and whether management sellers carry the same exposure as passive investors.

Frequently asked questions about share purchase agreements

The questions below are the ones UK SME owners most often ask once a deal reaches the SPA stage. Each answer stands alone.

The bottom line for sellers

The share purchase agreement is where the commercial outcome of a sale is actually settled. The headline price gets the attention, but the structure, the warranties, the indemnities, the disclosure and the caps decide what a seller keeps and what risks follow them into retirement. The strongest protection is not sharper drafting at the end of the process; it is arriving at the SPA stage with a business that survives scrutiny, more than one credible buyer in the picture, and advisers instructed early enough to shape the deal rather than react to it.

If you are weighing up a sale, the useful first step is to see who is actually buying businesses like yours. You can check live acquisition demand on the register, free and in confidence, at BusinessWanted.com, before you commit to any process or any buyer.