Share Purchase Agreement (SPA)

The share purchase agreement, or SPA, is the contract by which shares in a company are transferred. Where the business itself is sold instead of the shares, the counterpart is an asset purchase agreement. In Germany, the sale of shares in a GmbH must be notarised.

The structure

• Subject matter: which shares, in what proportion, with what rights.
• Price and mechanism: locked box or closing accounts, the definition of net debt and the working capital target, and where applicable an earn-out.
• Conditions to completion: merger control, third-party consents, change-of-control clauses in customer and credit agreements.
• Warranties: assurances on accounts, tax, contracts, employment, litigation, intellectual property and data protection.
• Indemnities: named risks the seller bears irrespective of the warranties – typically matters that surfaced during the review.
• Liability: de minimis, basket, cap, limitation periods, and how they are secured through a retention, an escrow account or warranty and indemnity insurance.

Which parts are finance work

A substantial share of an SPA consists of numbers and definitions that have to come from the finance function: the reference balance sheet, the list of net debt items, the derivation of the working capital target, the disclosure schedules against the warranties, and the accounting hierarchy for any completion balance sheet. Producing those inputs during contract negotiation means negotiating under time pressure over definitions that move the price.

The disclosure schedules

The disclosure schedules are the practically most important annex: anything disclosed there cannot later be claimed as a breach of warranty. A complete, properly evidenced set is therefore the seller's most effective limitation of liability – and it is built from the same material as the data room.

Signing and closing

Signature and completion rarely coincide. Between them sit the conditions and frequently several months. During that period the seller is subject to conduct-of-business undertakings intended to preserve the ordinary course – and, under a locked box structure, to the ban on value leakage.

This is general information, not legal advice. It describes which parts of an SPA come out of the finance function and how they are prepared.