Share Purchase Agreement (SPA)

Definition

The SPA is the heart of a share deal. It fixes the price mechanism (locked-box or completion accounts), the seller's representations and warranties about the state of the business, the indemnities for known risks, and the conditions precedent that must be satisfied before closing.

The economic balance of an SPA lives in its risk allocation: warranty caps, baskets/thresholds, the survival period of the warranties, and the disclosure letter that qualifies them. What is negotiated here determines who pays if a skeleton falls out of the cupboard after closing.

When it matters

The price draws attention, but the SPA's warranty and indemnity architecture sets your real exposure. A high price with uncapped warranties can be worse than a lower price with a tight cap and short claim period.

Frequently asked

What is the difference between an SPA and a letter of intent (LOI)?

The LOI sets the headline terms and exclusivity on a non-binding basis before due diligence; the SPA is the binding final contract signed after due diligence that actually transfers ownership at closing.

Which clauses cause the most negotiation?

The warranty cap, the baskets/thresholds, the survival period of the warranties, the treatment of working capital, and any earn-out and non-compete provisions. That is where the real risk allocation sits.

Do I need a separate sale memorandum alongside the SPA?

An information memorandum is used to interest buyers before the SPA; it is not a substitute. The SPA typically references the disclosure letter and the due-diligence data room as the factual basis for the warranties.