Buy shares and you buy the company's entire history, including the parts nobody found in diligence. The SPA is what decides who pays for them.
A buyer acquires all the shares in a logistics company for £7.2 million. Four months after completion, a former employee brings a discrimination claim relating to conduct in the year before the sale. Six weeks later, the tax authority opens an enquiry into a VAT treatment the company adopted three years earlier. Neither issue appeared in diligence. Neither was disclosed.
Both are now the buyer's problem, because when you buy shares you buy the company, and the company carries its entire history with it. Whether the buyer recovers anything depends almost entirely on how the share purchase agreement was drafted — which warranties were given, how they were qualified, what the caps and time limits say, and whether a tax covenant was included.
That is the core of what an SPA does. It is not really a document about transferring shares, which is mechanically trivial. It is a document about allocating the risk of everything you cannot see.
A share purchase agreement is a contract under which a seller transfers shares in a company to a buyer, in exchange for consideration, on agreed terms. It records the price and its calculation, the conditions to completion, the seller's statements about the company, the limits on the seller's liability for those statements, and the parties' obligations before and after closing.
Because the legal entity continues unchanged — same contracts, same employees, same licences, same liabilities — an SPA involves less transfer machinery than an asset deal and considerably more risk allocation.
The choice of structure is usually the first substantive negotiation in a transaction, and the parties' interests typically point in opposite directions.
The counterweight is that asset deals are operationally harder. Contracts need assignment or novation, often requiring counterparty consent, which gives every counterparty a moment of leverage. Licences may not transfer at all. Employees typically transfer automatically under employment protection legislation whatever the agreement says. The comparison is set out more fully in what a purchase agreement is.
Identifies the shares precisely — class, number, and that they are sold free of encumbrances with all rights attaching. Where there are multiple sellers, whether their obligations are joint, several, or joint and several is a significant negotiation: a buyer wants to pursue any seller for the full loss; sellers want liability limited to their share of the proceeds.
Two dominant approaches:
Consideration may also be deferred, paid in shares, or made contingent through an earn-out tied to post-completion performance. Earn-outs resolve valuation disagreements and create new ones — typically about how the business was run during the earn-out period, which is why they need accompanying operating covenants.
Regulatory and competition clearances, change-of-control consents under material contracts, financing, and sometimes shareholder approval. Each needs an owner, a longstop date, and a consequence if unsatisfied.
The heart of the document. The seller makes statements about the company: title to shares, capacity, accounts, tax, contracts, litigation, employees, property, intellectual property, data protection, insurance, compliance. A full warranty schedule commonly runs to many pages.
The buyer's protection comes from warranties being accurate; the seller's protection comes from qualifying them. Knowledge qualifiers narrow the statement to what the seller is aware of. Materiality thresholds exclude trivia. And the disclosure letter, discussed below, carves out specific known issues entirely.
A separate document delivered at signing, listing exceptions to the warranties. Anything properly disclosed cannot form the basis of a warranty claim, because the buyer bought with knowledge of it.
This makes the disclosure letter as commercially important as the warranty schedule itself, and it is routinely under-scrutinised by buyers under time pressure. General disclosure of the entire data room — a seller favourite — can gut warranty protection if accepted, which is why buyers resist it and push for specific disclosure against identified warranties.
Usually a separate schedule or deed. A pound-for-pound indemnity for pre-completion tax liabilities, operating independently of the warranties and generally without the same causation and mitigation arguments. Given that historic tax exposure is one of the main risks of buying shares rather than assets, this is frequently the single most valuable protection in the document.
Non-compete, non-solicit of customers and employees, and confidentiality obligations on the seller. Enforceability depends on reasonableness in scope, geography, and duration, assessed against the legitimate interest being protected. Covenants given on a business sale are generally treated more permissively than those in employment contracts, because the buyer has paid for goodwill.
Increasingly common in mid-market and larger deals. A policy covering breach of warranty, typically taken out by the buyer, which allows the seller to exit with minimal ongoing liability while the buyer retains meaningful recourse.
It is particularly useful where the seller is a private equity fund needing to distribute proceeds, or where sellers are individuals who will have spent the money. It does not remove the need for diligence — insurers exclude known issues and price on the quality of the diligence performed — and it does not cover everything, with known tax issues, forward-looking statements, and some environmental matters commonly excluded.
Signing an SPA rarely ends the work. Warranty claim windows run for months or years. Earn-out periods require performance measurement and often constrain how the business may be operated. Completion accounts must be prepared, exchanged, and agreed within defined periods. Restrictive covenants bind. Tax covenant protection runs for years.
Each of these obligations has a deadline, and the deadlines are expressed relatively — "within 30 business days of delivery of the draft Completion Accounts" — rather than as dates anyone has written down. The agreement, meanwhile, has become a PDF in a deal folder. The most common post-deal failure is not a dispute about what the SPA said; it is a claim window that closed while nobody was watching.
An SPA transfers ownership of a company by transferring its shares, so the buyer inherits everything the company owns and owes, including unknown and historic liabilities. An asset purchase agreement transfers identified assets and only identified liabilities, leaving the rest with the seller. Sellers typically prefer share sales for the clean exit and often better tax treatment; buyers typically prefer asset purchases for the liability protection. Asset deals are harder to execute because contracts, licences, and property each transfer by different mechanisms and may need third-party consent.
A document delivered alongside the SPA in which the seller sets out exceptions to the warranties — matters that would otherwise breach them. Properly disclosed matters cannot found a warranty claim, because the buyer proceeded with knowledge. It is commercially as significant as the warranty schedule, and buyers should scrutinise it as closely. Sellers often push for general disclosure of the whole data room, which substantially weakens warranty protection; buyers generally insist on specific disclosure against identified warranties instead.
Completion accounts adjust the price after closing based on the company's actual cash, debt, and working capital at the completion date — more precise, but requiring post-completion preparation and agreement, which frequently produces disputes. A locked box fixes the price by reference to a historical balance sheet date, with the seller undertaking that no value has leaked out since through dividends, bonuses, or related-party payments. Locked box gives price certainty and a faster closing; the buyer takes the economic risk of the business from the locked box date onward.
General commercial warranties commonly have a claim period of twelve to twenty-four months from completion, chosen so the buyer experiences at least one full audit cycle. Tax warranties and tax covenants typically run much longer, often aligned to the statutory assessment window in the relevant jurisdiction. Title, capacity, and authority warranties are frequently subject to a far longer period or none at all. These are negotiated commercial positions rather than legal defaults, and they vary with deal size, sector, and relative bargaining power.
A separate indemnity under which the seller agrees to pay the buyer, pound for pound, for tax liabilities of the company relating to periods before completion. It operates independently of the warranties and generally avoids arguments about causation, mitigation, and measure of loss that complicate warranty claims. Because historic tax exposure is one of the principal risks of acquiring shares rather than assets, the tax covenant is often the most commercially valuable protection the buyer obtains.
Not always, but it solves a specific problem: sellers who need a clean break and buyers who still want recourse. It is common where the seller is a fund distributing proceeds or individuals who will not retain the money. It does not substitute for diligence — insurers price on diligence quality and exclude known issues — and it carries standard exclusions including known tax matters, forward-looking statements, and certain environmental and pension risks. Whether it is worth the premium depends on deal size, the sellers' covenant strength, and how much of the price they need unencumbered.
HERO keeps transaction documents structured after signing. Defined terms, cross-references between the SPA and its schedules, disclosure items, claim windows, and completion accounts deadlines stay addressable rather than flattening into a PDF in a deal folder — so the question of when a warranty period expires is a lookup, not an archaeology exercise. Book a demo.