Share Purchase Agreement (SPA): Key Terms And Risks For UK SMEs

If you’re buying or selling shares in a UK company, there’s a good chance you’ll hear the phrase “share purchase agreement” (often shortened to “SPA”) very early on.

That’s because a Share Purchase Agreement is the main legal document used when one party buys shares from another. It sets out exactly what’s being sold, on what terms, and what happens if something goes wrong.

For UK SMEs, an SPA isn’t just paperwork - it’s the deal. Done properly, it protects you from nasty surprises and helps everyone move forward with confidence. Done poorly, it can leave you exposed to liability, disputes, and a purchase that doesn’t deliver what you thought you were buying.

Below, we break down how an SPA works, key clauses to look out for, common risks, and practical steps you can take to protect your business from day one.

What Is A Share Purchase Agreement (And When Do You Need One)?

A Share Purchase Agreement (SPA) is a contract for the sale and purchase of shares in a company. In plain terms:

• The seller agrees to sell a certain number (or percentage) of shares, and
• The buyer agrees to purchase those shares, usually at an agreed price and on agreed terms.

This is different from an “asset sale” (where you buy the business assets like equipment, stock, goodwill, IP, customer lists, etc). In a share sale, you buy into the company itself - which means you also inherit its history, contracts, and potential liabilities.

Common Scenarios Where You’ll Use An SPA

You’ll typically need an SPA when:

• You’re buying an existing company (or buying out one or more shareholders).
• You’re selling your company to another business, investor, or management team.
• You’re restructuring ownership (for example, moving shares between founders, family members, or holding companies).
• You’re doing a partial exit (selling only part of your shareholding).

If you’re still negotiating the commercial “headline terms” (price, timing, what’s included), it can be sensible to start with a Term Sheet before moving into a full SPA.

Is “SPA” Actually A Legal Term In The UK?

Yes - “SPA” is common shorthand in UK business transactions. There’s no single “SPA law” that dictates one standard format, but SPAs are governed by general principles of UK contract law, company law, and (where relevant) tax rules and regulatory requirements.

Because each deal is different, a strong SPA is usually tailored to reflect the specific risks, bargaining power, and commercial objectives of the buyer and seller.

What Should A UK Share Purchase Agreement Include?

A well-drafted Share Purchase Agreement should make the deal clear and enforceable. At a minimum, it should cover:

• Who is buying and selling (including any guarantors or additional parties).
• What shares are being sold (number, class, and the rights attached to them).
• Purchase price and how/when it’s paid.
• Completion mechanics (what happens at “completion”, what documents are exchanged, and what needs to be satisfied first).
• Warranties and indemnities (promises about the company and compensation if they’re untrue).
• Limitations on liability (caps, time limits, and claim procedures).
• Restrictive covenants (non-compete and non-solicitation protections, where appropriate).

In practice, most SMEs find the “legal heavy lifting” in an SPA happens around risk allocation: who carries what risk, and how the buyer can claim if something was misrepresented.

SPA Vs Shareholders Agreement - Do You Need Both?

They do different jobs:

• An SPA documents the transaction (the share sale itself).
• A shareholders agreement governs the relationship between shareholders after completion (decision-making, exits, funding, disputes, etc).

If the buyer will become a shareholder alongside others (for example, the founders are selling 30% to an investor), you’ll often need both the SPA and a Shareholders Agreement so everyone is aligned on what happens next.

Don’t Forget The Company’s Constitution

The SPA should also “fit” with the company’s constitution (usually its articles of association). For example, the articles might include restrictions on share transfers, pre-emption rights, or director appointment rights.

It’s common to review and, if needed, update the Company Constitution alongside the SPA so the transaction is valid and the ongoing governance works in practice.

Key SPA Legal Terms UK SMEs Should Understand

If you’ve never worked through an SPA before, some clauses can feel a bit intense - but they’re there to make sure both sides know where they stand.

Here are the big ones to pay attention to.

1) Conditions Precedent (Things That Must Happen Before Completion)

Conditions precedent are “deal blockers” - the transaction won’t complete unless these conditions are satisfied (or formally waived). For SMEs, common examples include:

• Receiving lender consent (if the company has finance arrangements that restrict ownership changes).
• Third-party consent under key contracts (like a major customer or supplier agreement).
• Regulatory approvals (industry-specific).
• Completion of a restructure (for example, moving assets into the company before selling shares).

Where contracts need to be transferred or replaced as part of the restructure, a Deed of Novation may be required, depending on the circumstances.

2) Warranties (Promises About The Company)

Warranties are statements the seller makes about the company - such as:

• the accounts are accurate and not misleading;
• the company has complied with laws;
• there are no undisclosed disputes;
• key assets are owned by the company;
• the company’s tax affairs are in order.

If a warranty turns out to be untrue, the buyer may be able to bring a claim for breach of warranty (subject to the SPA’s rules, caps, and time limits).

For sellers, this is why “disclosure” is so important. You’ll typically provide a disclosure letter (or disclosures against the warranties) so that known issues are properly flagged and don’t later become warranty claims.

3) Indemnities (Specific “If This Happens, You Pay” Protection)

Indemnities are usually more buyer-friendly than warranties. They tend to deal with known or specific risks and can operate on a pound-for-pound basis.

Common indemnities in SME deals include:

• an ongoing tax enquiry;
• a particular dispute;
• unpaid VAT/PAYE issues;
• IP ownership gaps that need fixing.

Note: this article is general information and isn’t tax advice. For transaction-specific tax structuring and tax risk, you should speak to a qualified tax adviser.

4) Price Mechanisms: Completion Accounts Vs Locked Box

There are different ways to handle purchase price in an SPA, and they can have major cashflow implications.

• Completion accounts: price adjusts after completion based on actual working capital, debt, cash, etc.
• Locked box: price is fixed using historical accounts, and the seller promises not to extract value (“leakage”) before completion.

Neither approach is “better” in the abstract - it depends on the business, the quality of financial information, and how much certainty both sides want.

5) Limitations On Liability (Caps, Thresholds, Time Limits)

Most SPAs include terms that limit the seller’s exposure, such as:

• Financial cap (maximum total liability, often linked to purchase price).
• De minimis (minimum size of an individual claim).
• Basket (claims only payable once they exceed a threshold).
• Time limits for bringing claims (often longer for tax matters).
• Claim procedure (how and when the buyer must notify the seller).

This is one of the areas where SPA drafting detail really matters - because a poorly drafted claims process can stop an otherwise valid claim from being enforceable.

6) Restrictive Covenants (Non-Compete And Non-Solicit)

If you’re buying a company, you’ll usually want to ensure the seller can’t immediately set up a competing business and take clients, staff, or suppliers with them.

Restrictive covenants can cover:

• non-compete (not running a competing business for a certain period/area);
• non-solicit of customers/suppliers;
• non-poaching of employees/contractors.

These clauses need careful drafting to be enforceable - overly broad restraints can be difficult to rely on.

Big Risks In A Share Purchase (And How The SPA Helps Manage Them)

A share purchase can be a smart growth move - especially if you’re acquiring an established brand, team, contracts, and market presence. But you also need to go in with your eyes open.

Here are some of the most common risks UK SMEs run into in share purchases, and where the SPA can help reduce your exposure.

Unknown Liabilities

Because you’re buying the company (not just its assets), you may inherit liabilities such as:

• unpaid tax, VAT, or PAYE;
• employee claims;
• historic contract breaches;
• data protection issues;
• ongoing disputes that weren’t obvious from the outside.

How the SPA helps: warranties, indemnities, disclosure, and clear limitations/claim procedures can allocate the risk to the seller (to the extent negotiated).

Financial Performance Not Matching Expectations

Sometimes the business “looks great” during discussions, but once you take over you realise the margins aren’t sustainable, key customers were about to leave, or costs weren’t properly recorded.

How the SPA helps: warranties about accounts, customer contracts, and the absence of material adverse changes can create legal recourse if the position was misrepresented. But this only works if warranties are appropriately drafted and you have a clear evidence trail.

Share Title And Ownership Problems

You want certainty that:

• the seller actually owns the shares;
• the shares are free from charges or encumbrances;
• there aren’t hidden rights (like options, convertible notes, or pre-emption rights) that block the transfer.

How the SPA helps: title warranties, completion deliverables (share certificates/stock transfer forms), and a requirement for shareholder approvals if needed.

Key People Risk

In many SME acquisitions, the business value is closely tied to one or two individuals (often the founder). If they leave, clients may follow.

How the SPA helps: restrictive covenants, transitional service obligations, and (where appropriate) conditions about key staff remaining in place for a period.

Post-Completion Disputes

Disputes often arise when expectations weren’t documented properly - for example, disagreement about what was promised, what information was disclosed, or whether the buyer is entitled to a price adjustment.

How the SPA helps: clear drafting on price mechanisms, disclosure, and dispute resolution reduces uncertainty and gives you a defined process if issues arise.

Practical Steps Before You Sign An SPA

Even a great SPA can’t fix everything if you haven’t done the groundwork.

Before signing, build in time for these steps (they’re worth it).

1) Do Proper Legal And Financial Due Diligence

Due diligence is how you verify what you’re buying (or what you’re selling). For buyers, it’s your chance to uncover red flags early and negotiate protections into the SPA.

Due diligence often covers:

• company structure and share capital;
• material contracts (customers, suppliers, leases, finance);
• employment and contractor arrangements;
• IP ownership (brands, domains, software, designs);
• data protection compliance;
• disputes and regulatory issues.

If you’re running a transaction and want a structured approach, a Legal Due Diligence Package can help you cover the main risk areas without missing key documents.

2) Make Sure The Deal Structure Matches Your Goals

Ask early:

• Is this definitely a share purchase (not an asset purchase)?
• Are you buying 100% of shares, or a minority stake?
• Do you need control rights (board seats, veto rights, reserved matters)?
• Will the founders stay involved, or exit immediately?

This is where it’s helpful to think beyond the SPA itself and consider what the “day after completion” looks like.

3) Confirm The Corporate Approvals Needed

Depending on the company’s constitution and any shareholders agreement, you may need:

• board approvals;
• shareholder resolutions;
• waivers of pre-emption rights;
• updates to statutory registers and Companies House filings.

These details often become “completion deliverables” in the SPA - meaning completion can’t happen until the right approvals are in place.

4) Don’t Treat Templates As “Close Enough”

It’s tempting to download a generic SPA template online, fill in a few blanks, and call it a day.

But a Share Purchase Agreement is one of those documents where the details matter. A small drafting gap can create a very expensive problem later - especially around warranties, indemnities, and limitations on liability.

If you’re investing significant money (or selling a business you’ve built for years), it’s worth getting the SPA drafted or reviewed so it actually reflects the deal you think you’re doing.

5) Use The Right Documents For The Transaction

Sometimes founders search for “SPA agreement” when what they really need is an SPA (also commonly described as a “share sale agreement”) plus a bundle of related documents, depending on the deal.

For example, if you’re transferring shares between owners or bringing in a new buyer, the documentation often includes the SPA, shareholder consents, and governance updates.

Key Takeaways

• A Share Purchase Agreement (SPA) is the core contract used to document the sale and purchase of shares in a UK company, setting the rules for price, completion, and risk allocation.
• A strong SPA will cover purchase price mechanics, completion steps, warranties, indemnities, and limits on liability - not just the headline commercial terms.
• Share purchases can expose buyers to unknown liabilities because you inherit the company’s history, so warranties, indemnities, and due diligence are crucial.
• Sellers should focus on accurate disclosure and clear liability limitations to reduce the chance of post-completion claims.
• If the buyer will join existing shareholders (or founders are staying on), you’ll often need a shareholders agreement alongside the SPA to manage decision-making and exits going forward.
• Because SPA drafting is highly deal-specific, it’s usually risky to rely on generic templates - getting the SPA drafted or reviewed can save major cost and stress later.

If you’d like help drafting or reviewing a Share Purchase Agreement, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.