Andrew Robins

Published 11 January 2022

An Examination of a Share Purchase Agreement

Part 2. The Main Terms of an SPA

In our last post, we outlined the preliminary steps necessary before parties to a sale purchase will be in a position to start drafting the main terms of a Share Purchase Agreement (SPA). In this post, we take a look at the main provisions that parties should be planning, negotiating, agreeing and eventually drafting in order for a SPA to be successfully concluded.

Main terms of the SPA


There are normally, but not always, two parties to the SPA. However, there may be multiple parties to the agreement (for example, where shares are owned by several people) in which case their details will need to be included in a separate schedule to the agreement. 

Agreement to sell and to purchase the shares

It perhaps goes without saying that it’s important to record the agreement to sell and buy shares and that the buyer will receive good and proper title to the shares. The agreement should also include details of how many shares are subject of the agreement and the type of shares.

Payment and payment terms  

The purchase price provisions should deal with how the price will be satisfied when the price must be paid, whether the price is a fixed sum, or subject to a price adjustment mechanism. The payment terms and conclusion of the agreement are sometimes different, and this should be specified.

Price adjustments

Some SPAs may include purchase price adjustments terms. These protect a buyer from changes in the value of the target company between the date of valuation and the closing of the SPA. In some cases, it is agreed that there will be future and conditional payments, paid for example if the target company achieves a particular level of future performance. These are known as Earn Outs and are often not only attractive to the seller but also offer an element of protection to the buyer.

Alternatively, a SPA may include a holdback provision that allows the buyer to withhold a portion of the purchase price until some condition has been satisfied, failing which, payment will not be made.

All these provisions will need to be detailed, specific and carefully drafted and may require a separate and additional agreement if, for example, funds are to be held in escrow.

Closing and completion

Again, whilst it may seem obvious, details of the dates required for the exchange of documents, required actions, date (and place) of completion, etc. should all be mentioned. Some activities such as stock transfer may happen after completion of the SPA.

Termination rights

Termination rights allow a party to end the SPA before closing, either by way of mutual written agreement or on the occurrence (or non-occurrence) of specific events.

Conditions precedent

In some situations, it may be necessary for the completion of the SPA to be conditional on certain matters, such as obtaining tax clearances or regulatory approval and in these circumstances, a conditions precedent clause can be used. If the conditions are not met, one or both parties to the SPA have the right to walk away from it.

Protecting the parties

Protection for the parties can be provided for in a variety of ways, including by way of warranties, indemnities and covenants made in a SPA. These usually need to be drafted in such a way that they last after the closing of the transaction. They deal with issues that may affect the value or viability of the target company and any risk associated with it. They should include protection for the buyer in respect of any tax liabilities that may not have been revealed by the due diligence.


A warranty is a statement by a seller about a particular state of affairs of the target company. They are used to protect the parties as any breach can form the basis of a claim for damages. The status of the company in the market should be covered here as well as the capital structure of the company, a list of directors and shareholders.

To that end, this section will be very detailed and should reflect the state of the target company in terms of general matters as well as more specific issues. Whilst the most extensive warranties will normally be made by the seller, they can be given by either or both parties.

Warranties should be used to cover issues such as:

  • Confirmation of up to date and accurate bookkeeping and record keeping 
  • Confirmation of tax compliance including paying taxes and filing tax returns on time, tax treatments of certain transactions, etc.
  • Confirmation that the target company has no undisclosed liabilities or litigation
  • Confirmation of general compliance, i.e. that the target is legally authorised to do business and legally compliant in all relevant areas, such as anti-corruption, insurance, environmental and employment
  • Details of the target company’s capital structure, real property and assets (and encumbrances)
  • Details of the target company’s IP and contracts
  • Details of all liabilities and bank and financial accounts

This is not an exhaustive list, and this area will need detailed provisions and careful drafting. There may also be negotiation about the appropriate scope of any warranties.


An indemnity provides for the seller to pay money to the buyer on a pre-formed basis to compensate for loss incurred post-purchase by either the purchaser, target company or both on the occurrence of a specified event. The rules relating to how damages for breach of contract are determined generally do not apply.

Once again, care is needed when it comes to drafting. A well drafted indemnity clause can give rise to a debt claim, covering all losses flowing from the occurrence of the specified event. The alternative is often a claim for breach of warranty but the amount recoverable under such a claim may be less.

Consideration will also need to be given as to whether the indemnification clause should provide an exclusive or a non-exclusive remedy. An exclusive remedy normally waives the parties’ rights to claim under other remedies that are available, whereas a non-exclusive provision does not. The correct approach will of course depend on what other remedies might be available and whether the indemnity provides sufficient protection.

Often the subject of considerable negotiation, the seller is likely to want to limit the scope of the indemnities as much as possible perhaps by insisting on time limits, caps on liability or specifying a loss threshold as a trigger event.


The buyer may also insist on various restrictive covenants. These can be negative or positive and relate to what can or should be done by either party (usually the seller) either prior to closing the agreement or after the transaction has been concluded. For example, they may require a seller to carry on the business in the normal manner pending completion of the sale or to co-operate with the buyer in respect of certain specified matters once the sale is complete. They may also be used to prevent the seller setting up business in competition or poaching the target company’s clients or suppliers. They can also be used to restrict the target company, its shareholders, directors and management from dealing with the target company’s assets, capital and income or entering into / terminating contracts.

Alternatively, they may limit what the buyer can do in respect of the target company in advance of the sale or oblige the buyer to take certain action post-completion.

Concluding the agreement

Whilst the above represents the meat in respect of the main terms of a SPA, there are still a number of minor but important areas that need to be considered and included, and in our next and last post in this series on An Examination of a SPA, we take a quick look at these.

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