Buying or selling a business ("mergers and acquisitions" (M&A)) involves a sequence of documents, each with a job to do. For SMEs in England and Wales, understanding the key agreements helps you negotiate from a position of strength and avoid nasty surprises. Here is a plain-English tour of the essentials.
1. Non-Disclosure Agreement (NDA)
Before sharing sensitive information, the parties sign an NDA (confidentiality agreement) so that financials, customer lists and know-how are protected if the deal does not happen. It is usually the first document signed.
2. Heads of Terms (Heads of Agreement)
The heads of terms record the main commercial points agreed in principle, price, structure, key conditions and timetable. They are usually marked "subject to contract" and are mostly not binding, except for clauses like confidentiality, exclusivity and costs.
3. Share Purchase Agreement or Asset Purchase Agreement
The core contract is either:
- a Share Purchase Agreement (SPA), the buyer acquires the shares in the company (and so the company with all its assets and liabilities); or
- an Asset Purchase Agreement (APA), the buyer acquires specific assets (and chosen liabilities), leaving the rest behind.
The choice has big consequences for liability, tax and employees (TUPE may transfer staff on an asset sale), so it is a key early decision.
4. Disclosure Letter
In a share sale, the seller gives the buyer warranties (contractual assurances about the company). The disclosure letter is the seller's way of qualifying those warranties by disclosing known issues, protecting the seller from claims for things it has flagged. Buyer and seller negotiate hard over warranties and disclosure.
5. Warranties and indemnities
- Warranties are statements about the business; if untrue, the buyer may claim damages.
- Indemnities are promises to reimburse the buyer pound-for-pound for specific identified risks (such as a known tax issue or dispute).
These, with the price mechanism (completion accounts or a "locked box"), are where much of the value and risk is allocated.
Regulatory and other checks
Some deals trigger extra rules:
- National security: the National Security and Investment Act 2021 (NSIA) requires mandatory notification and prior government approval for certain acquisitions in specified sensitive sectors. Completing a notifiable acquisition without approval is generally void unless validated, and carries potential civil and criminal penalties.
- Competition: some mergers may fall within the CMA's jurisdiction if the relevant merger-control tests (including turnover and share-of-supply thresholds) are met. UK merger control is generally voluntary, but the CMA can investigate both anticipated and completed deals and may impose remedies.
- Public companies: acquisitions of companies within the Takeover Code's jurisdictional scope (broadly certain UK, Channel Islands and Isle of Man registered companies) are regulated by the Code, rather than all listed or public companies as a general class.
- Employees, data and contracts: consider TUPE, data protection, and change-of-control clauses in key contracts.
Due diligence underpins it all
Before signing, the buyer carries out due diligence (legal, financial, tax and commercial) to verify what it is buying. The findings shape the warranties, indemnities, price and conditions.
Key takeaways
- The typical M&A document chain: NDA → heads of terms → SPA/APA + disclosure letter (with warranties and indemnities).
- Choose share vs asset purchase carefully, it drives liability, tax and TUPE.
- Watch regulatory triggers: NSIA 2021 (national security), CMA (competition) and the Takeover Code (public companies).
- Due diligence underpins the deal and shapes the protections.
Sources
- Companies Act 2006 (shares and company transactions); general M&A practice
- National Security and Investment Act 2021 (mandatory notification in sensitive sectors)
- The Takeover Code (public companies); TUPE on asset sales
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor.