Share Purchase Agreements Explained: Key Clauses, Warranties & Indemnities

Written by Fraz Butt, Senior Director · SRA-regulated · Last reviewed 02 November 2026

If you are buying or selling a limited company, there is one document that will matter more than any other: the share purchase agreement, or SPA. It sets the price, decides who carries which risks and, if something goes wrong after completion, it is the document everyone turns to.

I’ve acted for buyers and sellers on share sales of every size, from a two-director family company to multi-million-pound acquisitions with overseas investors. One question comes up from clients on almost every deal: “Do I really need to read all of this?” The honest answer is yes. Or at least, you need to understand the clauses that could cost you money. That is what this guide is for.

Below I’ll walk you through what a share purchase agreement is, the key clauses you will see, how warranties and indemnities really work, and the practical points I tell every client to watch out for.

Quick summary: A share purchase agreement is the contract under which the shareholders of a company sell their shares to a buyer. Because the buyer takes on the company with all its history and liabilities, the SPA uses warranties, indemnities and a tax covenant to share out that risk, and a disclosure letter lets the seller qualify what they have promised.

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What Is a Share Purchase Agreement?

A share purchase agreement is a legally binding contract between the seller(s) of shares in a company and the buyer. It records the terms on which ownership of the company changes hands.

The key thing to understand is that on a share sale the company itself does not change. Its contracts, employees, assets, debts, tax history and any skeletons in the cupboard all stay inside the company. Only the owner changes. That is very different from an asset purchase, where the buyer can pick the assets it wants and leave the liabilities behind.

If you are still deciding between the two structures, I’d recommend reading our complete legal checklist for buying or selling a UK business first, as the choice of structure shapes everything that follows.

Because the buyer is taking on the company “warts and all”, most of the SPA is about one thing: who bears the risk of problems that existed before completion but come to light afterwards.

Who signs the SPA?

Usually:

• The seller(s): the existing shareholders, whether individuals or a holding company
• The buyer: an individual, a company or an investment vehicle
• Sometimes guarantors, for example a parent company standing behind a buyer’s payment obligations, or a seller’s spouse where shares are jointly held

Note that the target company itself is not usually a party, because it is the thing being sold.

Where Does the SPA Fit in the Deal Timeline?

Many clients have asked me when the SPA actually gets drafted. In a typical private company sale the order is roughly:

1. Heads of terms: a short, mostly non-binding summary of the headline deal (price, structure, timetable, exclusivity)
2. Due diligence: the buyer’s lawyers and accountants investigate the company
3. Drafting and negotiating the SPA and disclosure letter: usually running alongside due diligence
4. Exchange / signing: sometimes with conditions to be satisfied before completion
5. Completion: price paid, shares transferred, board changes made
6. Post-completion: Companies House filings, stamp duty, any completion accounts or earn-out

By convention, the buyer’s solicitor prepares the first draft of the SPA, and the seller’s solicitor prepares the disclosure letter. Whoever holds the pen has a small advantage, so if you’re the seller, don’t be put off by a first draft that looks heavily weighted against you. That is normal, and it is the starting point for negotiation.

The Key Clauses in a Share Purchase Agreement

Every SPA is different, but these are the clauses I’d expect to see in almost every one, and the ones I spend the most time negotiating.

1. Definitions and interpretation

It’s tempting to skip this section, but please don’t. Words like “Business Day”, “Disclosed”, “Losses” and “Seller’s Knowledge” are defined here, and a single definition can widen or narrow your liability significantly. For example, whether “Seller’s Knowledge” includes what you ought to have known after reasonable enquiry, or only what you actually knew, can make a real difference to a warranty claim.

2. Sale and purchase

This is the core obligation: the seller agrees to sell, and the buyer agrees to buy, the shares with full title guarantee and free from encumbrances (charges, options, liens and so on). It will also confirm whether the shares are sold with all rights attached, including the right to dividends declared after completion.

3. Consideration (the price)

This clause sets out how much is being paid and how. The price might be:

• Cash on completion
• Deferred consideration: paid in instalments after completion
• An earn-out: part of the price depends on the company’s future performance
• Shares or loan notes in the buyer
• A combination of the above

If you are a seller accepting deferred consideration or an earn-out, you are effectively giving the buyer credit. I always advise clients to look for security for those future payments, such as a personal or parent company guarantee, a retention held in escrow, or a charge over the shares.

4. Price adjustment: completion accounts vs locked box

This is one of the clauses I find clients are least familiar with, but it can move the price by a large amount.

Neither approach is “right”. It depends on the quality of the company’s accounts, how quickly its finances fluctuate and the bargaining position of each side.

5. Conditions

If the deal cannot complete at the same time as signing, the SPA will set out conditions that must be satisfied first. Common examples include:

• Shareholder or board approvals
• Consent from a lender or a key customer under a change-of-control clause
• Regulatory approval, for example in regulated sectors such as healthcare, financial services or pharmacy (if that’s your sector, see our guide on what buyers should know before purchasing a pharmacy)
• Government clearance under the National Security and Investment Act 2021

On that last point, I’d flag this to every client because it catches people out. Where a target carries on activities in certain sensitive sectors, acquiring certain levels of control can require mandatory notification and approval from the government before completion. The government’s guidance on notifiable acquisitions explains which acquisitions are caught. A notifiable deal that completes without approval is void, so this needs checking at the heads of terms stage, not the week before completion. It applies to UK buyers too, not just overseas investors.

6. Pre-completion undertakings (conduct of business)

Where there is a gap between signing and completion, the buyer will want the seller to run the company in the ordinary course and not do anything significant without consent. That means no new borrowing, no big contracts, no hiring or firing senior staff and no dividends. As a seller, make sure these restrictions are workable so you can still run the business day-to-day.

7. Completion mechanics

This clause, often with a schedule, lists exactly what each party must hand over at completion: signed stock transfer forms, share certificates, resignations of outgoing directors, board minutes, the company’s statutory books, and payment of the price.

8. Warranties

The heart of the SPA, and the area I’ll go into in more detail below.

9. Indemnities and the tax covenant

Specific promises to reimburse the buyer for particular liabilities. Again, covered in detail below.

10. Seller limitations

The clause that caps and restricts the seller’s liability. It is just as important as the warranties themselves.

11. Restrictive covenants

Most buyers are paying for goodwill, so they will want the seller(s) to agree not to compete with the business, poach its customers or employees, or use its name for a period after completion. These covenants are only enforceable if they go no further than reasonably necessary to protect the buyer’s legitimate interests, so their length and geographic scope need careful thought. In my experience, sensible covenants protect both sides, because they’re far less likely to end up in a dispute over enforceability.

12. Boilerplate

Entire agreement, confidentiality, announcements, notices, assignment, governing law and jurisdiction. These are standard but not meaningless. An entire agreement clause, for example, can stop you relying on something you were told in negotiations but which didn’t make it into the SPA.

Warranties Explained

What is a warranty?

A warranty is a contractual statement of fact about the company, given by the seller to the buyer. Typical warranties confirm things like:

• The seller owns the shares and has the right to sell them
• The company’s accounts are accurate and have been properly prepared
• There is no ongoing or threatened litigation
• The company has complied with the law, including employment, data protection and health and safety
• All tax returns have been filed and all tax paid
• The company owns or has the right to use its intellectual property
• Material contracts are valid and there are no change-of-control triggers
• Property, pension and insurance details are accurate

A long-form SPA can contain dozens of pages of warranties.

Why do warranties matter so much?

Warranties do two jobs:

1. They flush out information. Faced with a list of warranties, the seller must either confirm each one is true or disclose why it isn’t. This makes warranties an extension of due diligence.
2. They give the buyer a remedy. If a warranty turns out to be untrue, the buyer can bring a claim for breach of contract.

The catch for buyers

Here’s what many buyers don’t realise until I explain it: a warranty claim is a claim for damages for breach of contract. That means the buyer generally has to show that the breach has caused a loss, usually measured by how much less the shares are worth than they would have been if the warranty had been true. The buyer also has a duty to mitigate. Proving that loss can be complex and often needs expert valuation evidence.

So a breach of warranty does not automatically mean pound-for-pound recovery. That’s exactly why buyers ask for indemnities for known risks.

Fundamental vs business warranties

Most SPAs split warranties into two types:

• Fundamental (or title and capacity) warranties: the seller owns the shares, has authority to sell, and there are no third-party rights over them. These go to the root of the deal and usually carry higher liability caps and longer time limits.
• Business (or general) warranties: everything about how the company operates. These are usually subject to the full set of seller limitations.

Warranty repetition

If there’s a gap between exchange and completion, the buyer may ask for the warranties to be repeated at completion. Sellers should be cautious here: something could change in that window that you can’t control. A common compromise is a right for the seller to update disclosures, or for the buyer to walk away for a material breach rather than claim damages.

The Disclosure Letter: The Seller’s Best Friend

If you’re a seller, the disclosure letter is your main line of defence, and I’d encourage you to treat it with the same seriousness as the SPA itself.

The disclosure letter is a letter from the seller to the buyer setting out exceptions to the warranties. If something is fairly disclosed, the buyer generally cannot later claim for breach of warranty in relation to it, because the buyer bought knowing about it.

There are two types of disclosure:

• General disclosures: broad categories of information treated as disclosed, such as everything on the public register at Companies House, or the contents of the data room. Buyers will often try to limit these.
• Specific disclosures: detailed disclosures against individual warranties. For example: “Warranty 12.3: the company is in a dispute with a former supplier over an unpaid invoice of £18,000; see correspondence at data room folder 4.2.”

The golden rule I give every selling client is: if in doubt, disclose it. Disclosure has to be fair, meaning sufficiently clear and detailed for the buyer to understand the nature and scope of the issue. Burying a problem in a 4,000-page data room without flagging it is unlikely to be enough. Disclosing an issue might mean a tough conversation about price, but that is far better than a warranty claim after you’ve spent the money.

Indemnities Explained

What is an indemnity?

An indemnity is a promise to reimburse the buyer, pound for pound, for a specific liability if it arises. Unlike a warranty claim, the buyer doesn’t need to prove the shares lost value. They simply need to show the indemnified liability has arisen, and the seller pays.

When are indemnities used?

Indemnities are usually reserved for known or identified risks, often ones uncovered during due diligence. For example:

• A live court claim against the company
• A known environmental or planning issue at a property
• An employment tribunal claim, or historic misclassification of workers as self-employed
• A possible breach of data protection law
• Liabilities connected to a business transferred into the company under TUPE

Remember, a warranty claim is usually blocked if the issue was disclosed. Buyers therefore ask for an indemnity precisely because the risk has been disclosed. It shifts the cost of that known problem back onto the seller.

Warranties vs indemnities at a glance

The tax covenant (tax deed)

The tax covenant is a special type of indemnity, and you will see one on virtually every share sale. The seller covenants to pay the buyer for any tax liability of the company relating to the period before completion that hasn’t been provided for in the accounts.

Why is this so important? Because tax liabilities can surface years after a deal, once HMRC opens an enquiry, and the buyer will have inherited the company’s whole tax history. The tax covenant is often accompanied by detailed tax warranties and usually includes provisions on who controls any dispute with HMRC. A well-advised seller will negotiate exclusions, for example for liabilities arising from the buyer’s actions after completion.

Seller Limitations: Capping the Risk

If you’re selling, this is the section of the SPA I’d most want you to understand. A typical limitations schedule includes:

• De minimis: individual claims below a certain amount are ignored entirely
• Basket / threshold: claims can only be brought once they add up to more than an agreed total. This can be a “tipping” basket (once passed, the whole amount is recoverable) or a “deductible” (only the excess is recoverable)
• Cap: a maximum on the seller’s total liability. Fundamental warranties are often capped at the full price, with lower caps for business warranties
• Time limits: claims must be notified within a set period after completion. General warranty claims often have a shorter window than tax claims, which commonly run for several years to mirror HMRC’s own time limits
• No double recovery, and no liability for losses that are already provided for in the accounts or recoverable under insurance
• Conduct of claims: rights for the seller to be involved in defending third-party claims

Without these, a seller’s liability would be limited only by general law. Under the Limitation Act 1980, that can mean six years for a simple contract and twelve years for a contract executed as a deed. Most sellers want to know where they stand long before that.

Fraud carve-outs

You will almost always see a clause stating that the limitations don’t apply in the case of fraud or dishonesty by the seller. That is standard, and it’s very difficult to resist. Another reason honesty in the disclosure letter really is the best policy.

Warranty and Indemnity (W&I) Insurance

A question I’m being asked more and more is whether W&I insurance is worth it. W&I insurance is a policy, usually taken out by the buyer, that pays out if there is a breach of warranty or a claim under the tax covenant.

It can be attractive because:

• The seller can walk away with a “clean exit” and lower personal liability caps
• The buyer has a creditworthy insurer to claim against rather than individual sellers
• It can take the heat out of negotiations, particularly where the sellers are staying on to work with the buyer

However, policies come with exclusions, and known issues identified in due diligence are generally not covered. Premiums and excesses also need to be weighed against the deal value, and for smaller transactions it may not be cost-effective. It is a useful tool, but not a substitute for proper due diligence and a well-drafted disclosure letter.

Practical Tips: What I Tell Clients Before They Sign

If you are the buyer

1. Do proper due diligence. Warranties are a backstop, not a replacement for knowing what you’re buying.
2. Turn known risks into indemnities. If due diligence finds a problem, don’t rely on warranties alone.
3. Check who you can actually claim against. A warranty from a seller with no assets after the deal is of limited value. Consider retentions, escrow or guarantees.
4. Think about the NSI Act and change-of-control clauses early. They affect your timetable.
5. Budget for stamp duty. Shares bought using a stock transfer form for more than £1,000 generally attract Stamp Duty at 0.5%, and the form must be sent to HMRC within 30 days of being signed and dated.

If you are the seller

1. Get your house in order early. Tidy statutory books, an up-to-date shareholder agreement and clean contracts make the whole SPA process smoother. Our article on the top five company documents every business owner needs is a good place to start.
2. Disclose, disclose, disclose. Fair disclosure is your strongest protection.
3. Negotiate the limitations, not just the price. A higher price with an uncapped liability is not necessarily a better deal.
4. Secure any deferred payment. Don’t leave earn-outs and deferred consideration unprotected.
5. Take tax advice before you sign. Business Asset Disposal Relief can reduce the Capital Gains Tax on a qualifying share sale. For disposals on or after 6 April 2026 the rate is 18%. In the Autumn Budget on 28 October 2026, the government also announced plans to cut the lifetime limit from £1 million to £500,000. If you are planning an exit, timing could matter, so speak to your accountant early.

After Completion: Don’t Forget the Admin

Once the champagne has been opened, there are still some important steps:

• Updating the company’s register of members and issuing new share certificates
• Filing director appointments and resignations at Companies House
• Updating the register of people with significant control (PSC) and reporting the change to Companies House, in line with the Companies Act 2006
• Paying stamp duty and getting the stock transfer form processed by HMRC
• Running any completion accounts process and diarising earn-out and warranty claim deadlines

If the acquisition is part of a wider reorganisation of a group, our guide to corporate restructuring explains the next steps. And if you’re looking at an acquisition as a growth strategy, you may enjoy our earlier piece on business acquisitions.

How Saracens Can Help

A share purchase agreement is not a document you should download from a template website. Every clause shifts risk one way or the other, and the difference between a good SPA and a bad one often only becomes clear when a problem surfaces a year after completion.

Whether you’re buying or selling, we can help you:

• Review or draft heads of terms
• Run or respond to legal due diligence
• Draft and negotiate the share purchase agreement, disclosure letter and tax covenant
• Negotiate warranty limitations, indemnities and price mechanisms
• Manage completion and all post-completion filings

At Saracens Solicitors, our corporate and commercial team advises business owners, investors and companies in the UK and internationally on share and asset acquisitions. To discuss your transaction, call our London office on 020 3588 3500 or request a call back.

Frequently Asked Questions / Questions & Answers

What is the difference between a share purchase agreement and an asset purchase agreement? A share purchase agreement transfers ownership of the company itself, so the buyer inherits all of its assets, contracts and liabilities. An asset purchase agreement transfers selected assets of a business, such as equipment, stock and goodwill, out of the company, leaving the company and most of its liabilities with the seller.

Who drafts the share purchase agreement? By convention, the buyer’s solicitor prepares the first draft of the SPA and the seller’s solicitor prepares the disclosure letter. Both are then negotiated between the parties.

What is the difference between a warranty and an indemnity? A warranty is a statement of fact about the company. If it’s untrue, the buyer can claim damages but must usually prove a loss in the value of the shares. An indemnity is a promise to reimburse a specific liability pound for pound, without the same need to prove loss. Indemnities are normally used for known risks.

What happens if a warranty in an SPA turns out to be untrue? The buyer may bring a claim for breach of warranty, provided the issue wasn’t fairly disclosed, the claim is brought within the agreed time limit and it exceeds any de minimis and threshold amounts. Recovery is capped at the agreed limit unless there has been fraud.

What is a disclosure letter? A disclosure letter is a document from the seller to the buyer listing exceptions to the warranties. Matters that are fairly disclosed generally can’t later form the basis of a warranty claim, which makes the disclosure letter one of the seller’s most important protections.

What is a tax covenant? A tax covenant (or tax deed) is an indemnity under which the seller agrees to pay the buyer for any tax liabilities of the company relating to the period before completion that haven’t been provided for in the accounts.

How long does a seller remain liable under an SPA? It depends on what is negotiated. General warranty claims commonly have to be notified within a period of months to a couple of years after completion, while tax claims usually have a longer window. Without agreed limits, the general limitation periods under the Limitation Act 1980 would apply.

Is stamp duty payable on a share purchase? Usually, yes. Where shares in a UK company are transferred using a stock transfer form for more than £1,000, Stamp Duty is generally payable by the buyer at 0.5% of the price, rounded up to the nearest £5.

Do I need a solicitor for a share purchase agreement? There is no legal requirement to use a solicitor, but an SPA allocates significant financial risk and uses technical drafting that can be easily misread. I would strongly recommend independent legal advice for both buyer and seller, as the cost is usually small compared with the value at stake.

How long does it take to agree a share purchase agreement? For a straightforward private company sale, the process from heads of terms to completion often takes around two to four months. Complex deals, regulated sectors or transactions needing government clearance can take longer.