Structure of the Share Purchase Agreement, Sensitive Clauses and Common Pitfalls After the LOI
An SPA (Share Purchase Agreement) is the sale and purchase contract through which the sale of a company is legally formalized, typically by means of the transfer of its shares or equity interests.
It is the document that turns what were previously assumptions, numbers, promises and understandings reached during the process into binding legal obligations. Nothing is final until it is properly reflected in the SPA.
Although every transaction is different, the content of an SPA is usually structured into fairly clear sections.
The agreement begins by defining the basic elements of the transaction:
who is buying, who is selling, how many shares are being transferred, which assets are included, and which are expressly excluded.
This section often contains very detailed definitions and extensive schedules, precisely to avoid ambiguity in the later interpretation of the contract. Many future disputes are either avoided—or created—here.
The SPA sets out the base price and explains how it may be adjusted based on certain parameters.
Concepts such as net debt, working capital and cash are addressed here. Where applicable, earn-out mechanisms, deferred payments or post-closing adjustments are also regulated.
This is a particularly sensitive section because it directly affects the final amount received by the seller, even after a price has been “agreed” in the LOI.
The seller represents that certain facts about the company are true, such as:
These representations form the basis for the buyer to make claims later if something turns out not to be as represented. Every word matters, and nuances can have very significant practical consequences.
The SPA establishes how much, for how long, and above what amount the seller is liable in the event of a claim.
This section includes concepts such as minimum thresholds (de minimis and basket), maximum liability caps, and survival periods for the warranties.
This block determines the seller’s real post-sale risk, regardless of the agreed purchase price.
In addition to general warranties, the buyer often requests additional protections for specific risks identified during due diligence, such as a pending lawsuit or a known tax contingency.
These indemnities are usually regulated separately and, in many cases, subject to stricter conditions than standard representations and warranties.
These are requirements that must be fulfilled before closing for the transaction to become effective.
Examples include the repayment of loans, obtaining regulatory approvals, third-party consents or contract renewals.
If these conditions are not met, the buyer is not obliged to complete the transaction.
Between the signing of the SPA and the actual closing, the seller assumes certain obligations.
The objective is to ensure that the business is managed in the ordinary course and that no material changes occur without the buyer’s consent. These clauses aim to preserve the value of the business during this interim period.
The agreement also regulates obligations that remain in force after closing.
These include non-compete undertakings, cooperation commitments for audits, access to documentation, or assistance in tax matters. Some of these obligations may last for long periods and carry significant penalties in case of breach.
There are clauses that may go unnoticed in a quick reading but have a direct impact on post-sale risk.
Some very common examples include:
Allows the buyer to walk away if a material adverse change occurs. Broad definitions give the buyer significant discretion. Closed and specific lists are required.
Eliminates materiality thresholds within warranties, allowing claims for minor issues. Requires clear limits through caps and baskets.
Determines whether the buyer may claim for matters already known prior to closing. Without protection, the buyer may use known information to make post-closing claims.
Obliges the seller to use reasonable or best efforts to comply with certain obligations. If poorly defined, it may generate unexpected additional liabilities.
Requires the business to be operated in the ordinary course until closing. Without clear examples, the buyer may challenge normal operational decisions.
Defines what constitutes the “seller’s knowledge.” Some formulations include what the seller “should have known,” significantly expanding liability.
Regulate post-closing tax obligations. Broad drafting may shift historical tax liabilities to the seller if not properly limited in time and amount.
Establishes that only what is written in the SPA is valid. Any verbal promises or prior agreements disappear unless reflected in the contract or schedules.
In practice, certain points concentrate most of the negotiations:
Reaching this stage is not accidental. The seller has granted exclusivity and devoted months to the process.
The buyer has invested a very significant amount of time and money—easily exceeding €150,000 in smaller transactions—in due diligence and legal advice.
Both parties have incurred costs and made efforts that only make sense if there is a genuine intention to close.
At this point, both buyer and seller are clearly invested in the transaction.
This does not guarantee closing, but it does usually imply a genuine willingness to reach an agreement.
For this reason, every clause in the SPA matters, as it specifically determines how risk is allocated after the sale.
At this stage, it is essential to work with a legal advisor (lawyer) specialized in M&A, with proven experience across a large number of transactions—someone who understands which risks are reasonable to protect against, to what extent, at what stage, and what concessions are necessary for the deal to close.
By Joshua Novick, partner at Bondo Advisors
Source: https://www.joshuanovick.com/p/que-es-un-spa-y-por-que-es-critico
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