Share Purchase Agreement in Business Acquisition: What is a Share Purchase Agreement (SPA)?
A business acquisition or sale rarely happens overnight. You might have negotiated for months during this process. The end is in sight: the price has been discussed and the general terms are clear. Then comes the document that sets everything in stone: the purchase agreement.
By signing this document the takeover reaches its legal core. In international transactions, this agreement is usually referred to as a Share Purchase Agreement (SPA). For many entrepreneurs, this moment feels like the conclusion of an intensive process; this document determines how risks, responsibilities, and value are allocated.
Whether you are want to sell company or a want to take over a company, The purchase agreement in a business acquisition is more than a formality. It forms the foundation for the agreements made. In this blog post, you'll learn what a Share Purchase Agreement entails, how it's structured in a business acquisition, and what you, as an entrepreneur, should consider strategically.
What is a Share Purchase Agreement (SPA)?
A Share Purchase Agreement (SPA) is the purchase agreement that legally records the sale of shares in a company.
In a share transaction, the buyer doesn't purchase individual assets or operations, but rather the company's shares. This means that all assets and liabilities remain within the company. The buyer acquires the company as is, including contracts, employees, debts, and ongoing risks.
This makes an SPA fundamentally different from an asset-liability transaction. While a SPA involves the transfer of specific components, it's the whole package. This is an important consideration for entrepreneurs. The chosen structure directly influences risk allocation, tax implications, and negotiating room.
Why is a Share Purchase Agreement (SPA) important?
A Share Purchase Agreement protects both buyer and seller by clearly defining agreements regarding price, risks, and responsibilities. The key points are summarized below:
Protection for the buyer
: The SPA lays warranties and indemnities fixed, so that the buyer is protected against hidden obligations, incorrect information or unexpected claims after the transfer.
Protection for the seller
: The agreement limits liability in time and scope, so that it is clear what the seller is still responsible for and when the process is finally completed.
Clarity about the purchase price
: The SPA determines how and when the purchase price is finally determined, including any adjustments or earn-out dates.
Balanced risk distribution
: Clear agreements create a balance between both parties, which prevents subsequent discussions and provides peace of mind at closing.
What does a purchase agreement contain in the event of a business takeover?
The purchase agreement for a business acquisition sets out all commercial, legal, and financial agreements. The key components are:
1. Purchase price and price mechanism
The SPA describes not only the purchase price but also how it is determined. Consider a fixed price, a closing account mechanism, or a locked-box structure. Agreements regarding an earn-out arrangement are also included.
2. Warranties and Representations
The seller provides representations regarding the company's financial condition, for example, regarding the accuracy of the annual figures, tax position, or ongoing disputes. These guarantees are an important part of risk allocation.
3. Indemnities
Specific risks that arise during the process are often separately indemnified. This means that the seller remains liable for certain events or claims.
4. Conditions for closing
The agreement contains conditions precedent, such as bank approval, permission from the Netherlands Authority for Consumers and Markets (ACM), or completion of financing.
5. Agreements after transfer
Consider non-competition clauses, transfer of customer relationships, management agreements or temporary involvement of the seller.
A well-drafted SPA provides clarity and prevents subsequent disputes. Lack of clarity at this stage can prove costly later.
What is the difference between a Purchase Agreement and a Share Purchase Agreement?
A Share Purchase Agreement is the purchase agreement used in a share transaction. In practice, the difference lies primarily in the structure of the transaction, not the name.
Purchase agreement (general term)
: In the Netherlands, a purchase agreement is often used in business acquisitions. This is the collective term for the contract that sets out the sales agreements.
Share Purchase Agreement (SPA)
: This is the specific purchase agreement for a share transfer. The buyer acquires the company, including all assets, liabilities, rights, and obligations.
Asset Purchase Agreement (APA)
: In this case, it's not the shares that are sold, but specific assets and liabilities. The legal entity remains with the seller, while parts of the company are transferred.
The choice between a share or asset transaction isn't a purely legal decision. It has direct implications for taxation, liability, and the complexity of the process.
The question, therefore, is which structure best suits your objectives. Ideally, this decision should be made during the preparatory phase, so that the chosen purchase agreement aligns with the broader strategy of the business acquisition.
What role does an advisor play in drafting a Share Purchase Agreement?
Drafting a purchase agreement is not a purely legal exercise, but a strategic phase in the takeover process.
During negotiations, commercial agreements are made regarding price, terms, and future vision. These agreements must be legally sound, balanced, and enforceable in the Share Purchase Agreement. It is precisely this transition that often presents the greatest risks.
An experienced advisor will safeguard multiple interests simultaneously. Not only the legal wording, but also the economic outcome of the deal. How is the purchase price finally determined? How are guarantees limited? What liability remains after closing? And does the agreement align with the tax and financing structure?
By ensuring this consistency, you create a purchase agreement that's not only legally sound but also strategically aligned with your objectives. This prevents surprises later and ensures peace of mind during the transfer.
Why choose Match Plan?
Match Plan guides entrepreneurs from initial orientation to the final transfer. As an independent advisor, we combine strategic M&A advice with in-house legal expertise, ensuring your interests are prioritized and all documentation is meticulously documented. What we do for you:
- We provide full support from start to finish, from the initial strategic exploration and valuation to the financing and formal transfer at the notary.
- With over 30 years of experience, we combine in-depth knowledge of business transfers with legal expertise under one roof, ensuring that strategy and contract formation seamlessly integrate.
- Our advisors and lawyers work closely together and provide strategic input on negotiation strategy, transaction structure, risk allocation, and shareholder agreements.
- We work independently and transparently, always putting your goals and interests first in every step of the process.
- We ensure peace of mind and clarity by coordinating the entire process, so you can continue to focus on the daily operations of your business.
Would you like to know what transaction documentation for a business sale looks like in your situation? Feel free to contact us for a no-obligation consultation.
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