What Is a Share Purchase Agreement? A Plain English Guide for UK Business Sellers

A Share Purchase Agreement (SPA) is the main legal contract that governs the sale of a UK private company. It transfers ownership of your shares to the buyer, sets out the price and how it's paid, and — critically — defines what happens if something turns out to be different from what the buyer was told. Understanding it before you get near a negotiation is not optional. The SPA is where deals are won, lost, and argued over long after completion day.

Table of contents

What does a Share Purchase Agreement actually cover?

The SPA is a long document — typically 80 to 150 pages in a UK mid-market deal — but its structure is logical once you know what to look for. The core provisions are:

  • Definitions and interpretation — sets the vocabulary for everything else in the document
  • Sale and purchase mechanics — confirms what shares are being sold and to whom
  • Price and payment — the headline consideration, any deferred or contingent elements (earn-outs), and how it's physically transferred
  • Price adjustment mechanism — either completion accounts or a locked-box (more on this below)
  • Conditions to completion — anything that needs to happen before the deal legally closes (regulatory approvals, landlord consents, third-party sign-offs)
  • Warranties and representations — statements the seller makes about the state of the business
  • Tax covenant — specific protection for the buyer against pre-completion tax liabilities
  • Limitations on liability — the cap on what the seller can be held responsible for post-completion
  • Restrictive covenants — what the seller is prohibited from doing after completion (competing, poaching staff, etc.)
  • Completion mechanics — what actually happens on the day the deal closes

Each of these is negotiable. The SPA is not a standard-form document that you simply sign. It is a negotiated legal instrument, and the version the buyer's lawyers send first will be written entirely in the buyer's favour. That is normal. Your job — with your legal advisers — is to push it back towards the middle.

What are warranties — and why do they matter so much to sellers?

Warranties are statements you make about the business in the SPA. By signing, you are confirming that these statements are true as at completion. A typical warranty schedule covers: accounts, tax, employees, property, contracts, intellectual property, litigation, environmental matters, and compliance.

If a warranty turns out to be inaccurate, the buyer has a legal claim against you personally for the difference between what they paid and what the business was actually worth. This is the commercial risk that keeps sellers up at night — and rightly so.

The standard protection against warranty claims is the disclosure process. Before you sign, you produce a disclosure letter that qualifies the warranties against specific facts about your business. Anything properly disclosed cannot later form the basis of a warranty claim. Getting the disclosure letter right is as important as the SPA itself.

The risk of a warranty claim is real. In a privately negotiated deal without insurance (less common now — see below), the buyer has two to three years to bring a claim for general warranties, and longer for title and tax. That money is sitting at risk.

What is W&I insurance and why has it become standard?

Warranty and indemnity (W&I) insurance has transformed the UK mid-market SPA process over the last decade. It is now effectively standard on deals above £5m–£10m enterprise value, and increasingly common below that threshold.

A W&I policy is taken out — usually in the buyer's name — to cover warranty claims. If the buyer discovers a warranty breach post-completion, they claim against the insurer rather than the seller. The seller walks away clean.

Why buyers like it: They still get full protection, the insurer has deep pockets, and it avoids a damaging dispute with the management team they've just acquired.

Why sellers like it: The escrow or retention that used to sit in a solicitor's account for 18–24 months after completion can be released at completion. You get more cash on the day.

The seller typically still bears a policy excess (often £1 for every £1,000 of enterprise value, negotiated case by case). The premium is usually 0.9%–1.4% of the insured limit on UK mid-market deals, paid once at completion. Deal lawyers, brokers, and the buyer's adviser will run a competitive process to place the policy.

W&I insurance does not remove the need for proper disclosure. Insurers underwrite the policy against your disclosure exercise, and undisclosed matters remain your risk.

Locked-box or completion accounts — what's the difference?

The price adjustment mechanism is one of the most commercially significant choices in any SPA. It determines how the final price is calculated — and how much risk remains post-completion.

FeatureLocked-boxCompletion accounts
How it worksPrice fixed at a historical balance sheet date; cash, debt, and working capital agreed upfrontPrice adjusted after completion based on actual balance sheet at completion
Price certaintyHigh — seller knows proceeds at signingLower — final price confirmed weeks after completion
Risk of adjustmentLow for seller if leakage provisions are cleanBuyer can argue for a price reduction based on post-completion audit
Typical useAuction processes; PE buyers; straightforward balance sheetsTrade buyers; businesses with volatile working capital
Seller preferenceGenerally preferredGenerally less preferred
Complexity post-completionLowCan be significant — disputes about accounting policies are common

For most owner-managers, the locked-box is the better outcome if you can achieve it. It removes the uncertainty of a post-completion adjustment and means you know your number at signing. The trade-off is that you must be confident your financial information is accurate at the locked-box date — because that becomes the foundation of the price.

What limitation provisions protect the seller?

Limitations on liability are some of the most heavily negotiated provisions in any SPA. They define the ceiling on what you can be held responsible for. The key ones are:

  1. Financial cap — the maximum amount a buyer can claim under the warranties, usually expressed as a percentage of the total consideration. Sellers typically push for 20–30% of the deal value; buyers want 100%. With W&I insurance, this is often agreed at a lower level because the insurer picks up above the cap.

  2. De minimis threshold — individual claims below a certain value are disregarded entirely (e.g. £25,000–£50,000 on a £5m deal). Stops the buyer bringing trivial claims.

  3. Basket or aggregate threshold — the buyer can only bring claims once total claims exceed an agreed amount (e.g. 0.5%–1% of deal value). Below this, no claim.

  4. Time limits — general warranty claims must typically be brought within 18–24 months of completion; tax and title warranties often run for 5–7 years.

  5. Seller's knowledge qualifier — limits some warranties to what you actually knew at completion rather than objective truth. Buyers resist this, but it's worth fighting for.

These provisions exist in every SPA. The specific numbers are negotiated. The principle is to ensure you are not exposed to unlimited liability indefinitely for things you had no way of knowing.

What are restrictive covenants and what will you be expected to sign?

Almost every SPA includes post-completion restrictions on the seller. These typically cover:

  • Non-compete — you cannot set up or join a competing business for a defined period (typically 2–3 years, sometimes longer)
  • Non-solicitation of customers — you cannot approach former customers of the business for a set period
  • Non-solicitation of employees — you cannot poach key staff

These covenants are, in principle, enforceable under English law if they are reasonable in scope, geography, and duration. Courts have held restrictions void where they are disproportionate, so buyers cannot simply ask for unlimited restraint — but they will push for as much as they can.

If you intend to remain active in your sector after the deal, these covenants need careful attention before you sign. Negotiate the geography and duration. Do not assume they are standard and leave them unchallenged.

Before you reach the SPA, the commercial terms will have been agreed in a heads of terms document — it's worth understanding what that commits you to before lawyers get involved. See Heads of Terms Explained for a full breakdown. If you want a broader picture of how the whole process fits together, How a Trade Sale Works walks through each stage from preparation to completion.

FAQ

How long does it take to negotiate an SPA? In a typical UK mid-market deal, SPA negotiation runs for four to eight weeks from first draft to signing. Deals involving complex earn-outs, multiple shareholders, or regulatory conditions can take longer. The SPA process usually runs in parallel with final due diligence.

Who drafts the SPA first? In almost all cases, the buyer's solicitors produce the first draft. This is standard practice and means the document will initially favour the buyer heavily. Your solicitors will mark it up in response. Expect two to three rounds of negotiation before the document is agreed.

Is the SPA the same as Heads of Terms? No. Heads of Terms (HoTs) are a shorter, mostly non-binding document agreed earlier in the process that sets out the key commercial terms — price, structure, exclusivity, and timetable. The SPA gives those terms full legal force and adds substantial detail. See the related guide above.

Can I negotiate my own SPA without a solicitor? Not sensibly. The SPA is a complex legal document with significant financial consequences. Even experienced business owners rely on specialist corporate lawyers. This is not an area to cut costs.

What happens if there's a dispute about a warranty after I've sold? Where W&I insurance is in place, the buyer claims against the insurer. Without insurance, the buyer would pursue you directly. Either way, the claim process is governed by the limitation provisions in the SPA — the cap, the time limits, and the de minimis thresholds all apply.

What is a tax covenant and is it different from a tax warranty? Yes — they are related but distinct. Tax warranties are general statements about the company's tax affairs (e.g. all returns filed, no known disputes). A tax covenant is a specific indemnity under which you personally cover any pre-completion tax liability that crystallises after the deal closes. Tax covenants are standard and typically run for seven years, aligned to HMRC's enquiry window.

Understand what your business is worth before you reach the SPA stage

The SPA negotiation only matters if the price and structure are right in the first place. Use the free valuation calculator on the Succession Group website to get a realistic picture of where your business sits — based on sector, revenue, and EBITDA — before you enter any formal process.

This article contains general information only and does not constitute financial or tax advice. Every business sale is different. Speak to a qualified UK tax adviser about your specific situation before making any decisions.