When you buy or sell the shares in a private company in England and Wales, the central document is the Share Sale and Purchase Agreement (SPA). In a share sale the buyer acquires the company itself (with all its assets and liabilities) so the SPA does a lot of heavy lifting to allocate risk. Here are the key terms SMEs should watch.
1. What is being sold, and the price
The SPA identifies the shares being sold and the consideration (price). Watch how the price is paid and adjusted:
- Completion accounts, the price is adjusted after completion once the actual cash, debt and working capital are known.
- Locked box, the price is fixed by reference to a recent balance sheet date, with protection against value "leaking" out before completion.
- Deferred consideration / earn-out, part of the price is paid later, sometimes depending on future performance. Earn-outs are a frequent source of disputes, so the formula must be precise.
2. Conditions (if completion is not immediate)
Where signing and completion are split, the SPA sets conditions that must be satisfied first, for example regulatory clearances, third-party consents, or change-of-control consents under key contracts. Check what happens if a condition is not met.
3. Warranties
Warranties are the seller's contractual assurances about the company (accounts, tax, contracts, employees, litigation, assets). If a warranty is untrue, the buyer can claim damages for breach. For a buyer, warranties are vital, they allocate risk and flush out information. For a seller, they are the main exposure, so they are heavily negotiated. (See our separate guide to representations and warranties.)
4. The disclosure letter
The seller limits its warranty exposure through a disclosure letter: anything fairly disclosed against a warranty cannot later be claimed. Buyers should scrutinise disclosures carefully, a broad disclosure can gut a warranty.
5. Indemnities
For specific, known risks (a tax issue, a live dispute), buyers seek indemnities, a promise to reimburse pound-for-pound, usually without the buyer having to prove loss in the same way as a warranty claim.
6. Limitations on the seller's liability
Expect the seller to negotiate limits on claims: a financial cap (often the purchase price), time limits (e.g. claims within 12–24 months, longer for tax), a de minimis (ignore small claims) and a basket/threshold (claims must total a minimum before any is payable).
7. Restrictive covenants
The SPA usually stops the seller from competing, or poaching customers and staff, for a period after the sale, protecting the goodwill the buyer is paying for. These must be reasonable to be enforceable.
8. Tax
Share sales have important tax consequences for both sides (for the seller, possible Business Asset Disposal Relief; for the buyer, stamp duty at 0.5% on the consideration). A tax covenant/deed typically deals with pre-completion tax liabilities. Take tax advice early.
9. Completion mechanics
The SPA sets out exactly what happens at completion: delivery of stock transfer forms and share certificates, board resolutions registering the transfer, director/secretary changes, bank mandates, and payment. Getting the completion checklist right avoids loose ends.
Practical points for SMEs
- Do your due diligence, it shapes the warranties and indemnities you need.
- Buyers: push for solid warranties and specific indemnities; resist excessive caps and a vague disclosure letter.
- Sellers: disclose fully and negotiate sensible caps and time limits; consider warranty & indemnity insurance on larger deals.
- Get specialist tax advice on both sides before signing.
Key takeaways
- In a share sale the buyer takes the company with its liabilities, so the SPA allocates risk through warranties, indemnities and disclosure.
- Scrutinise the price mechanism (completion accounts / locked box / earn-out) and any conditions.
- Watch limitations on the seller's liability and the restrictive covenants.
- Plan completion mechanics and tax (stamp duty, reliefs, tax covenant) early.
Sources
- Companies Act 2006 (shares, transfers and registration); Stock Transfer Act 1963 (stock transfer form); stamp duty on shares (0.5%)
- General law of contract and misrepresentation (warranties, indemnities, disclosure); standard SPA practice in England & Wales
- Restraint-of-trade principles (reasonableness of restrictive covenants)
--- 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.