What Is a Share Purchase Agreement? A Guide for Business Owners

A share purchase agreement is the document that legally completes the sale of a company. Most business owners will only sign one once or twice in their working life, and the terms in it decide what you are left with once the deal closes. Whether you are selling a business you built from scratch or buying one to grow into new markets, the share purchase agreement, often shortened to SPA, sets out the price, the shares being transferred, and the protections both sides rely on afterwards. This guide covers what it includes, what the process looks like, what it costs, and the tax and liability questions that follow after signing. For the wider legal checklist to work through before buying a business, see our related guide.

What Is a Share Purchase Agreement?

A share purchase agreement governs the sale of shares in a limited company, rather than the sale of individual assets. When shares change hands, the buyer takes on the company exactly as it stands, including its contracts, its employees, its liabilities and its history. That is a meaningful difference from an asset purchase agreement, where the buyer picks specific assets, such as equipment, stock or customer contracts, and the seller keeps the company along with any liabilities the buyer chose not to take on. The tax treatment differs between the two structures, and asset sales usually raise TUPE questions around transferring staff that a share sale avoids, since the employer never actually changes. The agreement records who are selling, who is buying, how many shares are involved, the price, and the promises each side is making about the state of the company.

Key Terms in an SPA

A share purchase agreement is built from a set of standard components, though the detail in each varies with the size and risk profile of the deal.

• Parties and shares: who is selling, who is buying, and the exact shareholding being transferred.
• Price and payment structure: whether the full price is paid on completion, or part is deferred or linked to future performance.
• Warranties: statements the seller makes about the company’s accounts, contracts, employees and compliance.
• Indemnities: specific promises to cover named risks, pound for pound, if they materialise.
• Restrictive covenants: limits on the seller competing with, or poaching staff and customers from, the business they just sold.
• Conditions to completion: anything that has to happen before the sale can complete, such as third-party consents.

Why Warranties Matter More Than Buyers Expect

Warranties tend to be the section of an SPA that gets the most attention during negotiation, and for good reason. A warranty is a statement of fact about the company, that its accounts are accurate, that it owns the assets it claims to, that there is no undisclosed litigation, that key contracts are still in force on the terms described. If a warranty turns out to be false, the buyer has a claim, whether or not the seller knew it was false at the time of signing. Sellers negotiate hard to narrow warranties, add knowledge qualifiers, and cap their exposure, while buyers push for broader coverage and longer time limits to bring a claim. Getting this balance right is usually where most of the legal negotiation time on an SPA actually goes, more than the price itself.

The SPA Process

Most SPAs follow the same sequence. Heads of terms are agreed first, setting out price and structure in principle. Due diligence then runs alongside drafting, with the buyer reviewing accounts, contracts and company records while the first draft of the SPA takes shape, usually written by the buyer’s side. Both parties negotiate the detail, particularly the warranties and any conditions to completion, before signing and completing. For a straightforward SME sale, expect the drafting and negotiation stage to run four to eight weeks. After completion, there is usually a short list of tasks that still need doing: filing at Companies House, updating statutory registers, and paying any stamp duty due on the transfer.

SPA Costs and Fees

Legal fees for an SPA vary with the complexity of the deal rather than the price of the company. A small, clean sale with one seller and straightforward warranties costs considerably less than a deal with multiple shareholders, an earn-out, or a buyer who wants extensive protection. Some firms charge by the hour throughout, which makes the final bill hard to predict as negotiations run on. MAR Legal’s business sale solicitors quote a fixed fee once they understand the structure of your deal, so you know the legal cost before instructing them, whether you are based in Manchester or anywhere else in the UK. As a rough guide, expect legal fees to scale with the number of warranties negotiated and rounds of disclosure required, not with the headline price of the business.

Tax Implications and Liability

Sellers typically pay capital gains tax on the proceeds of a share sale and may qualify for Business Asset Disposal Relief depending on their circumstances and how long they have held their shares. Buyers should note that stamp duty of 0.5 percent applies to most share transfers. On liability, a seller’s exposure under the warranties does not end at completion. If a warranty turns out to be untrue and was not properly disclosed, the buyer can bring a claim for the loss caused, usually within a time limit and financial cap agreed in the SPA. This is why the disclosure letter, which qualifies the warranties by setting out anything that might otherwise breach them, matters as much as the warranties themselves. Sellers sometimes take out warranty and indemnity insurance to cap their personal exposure after completion, effectively transferring the risk of a warranty claim to an insurer, which can also help a deal close faster where a buyer is pushing for protection the seller is not comfortable giving personally.