Handshake to share purchase agreement, when selling your business

For many SME business owners, the early stages of a sale or investment can feel informal and positive. Heads of terms are agreed, the price is discussed, and there is a shared sense of momentum. However, once commercial discussions have progressed and headline terms are agreed, the transaction typically moves into the formal legal stage. At this point, the share purchase agreement becomes the key document governing the transaction.

The moment headline terms are agreed, the focus shifts from commercial optimism to legal precision. Careful planning is required to ensure the share purchase agreement accurately reflects the commercial deal agreed and safeguards your position. Your solicitor plays a central role in guiding the process, managing risk and helping ensure a smooth transaction from first draft through to completion.

In this article, we explain how SME transactions typically move from informal agreement to negotiating the share purchase agreement.

Moving from commercial agreement to legal documentation

There is often a clear moment when a transaction moves from being a commercial discussion to a formal legal process. Recognising that moment is important.

Common indicators are likely to include:

• price is agreed in principle;
• heads of terms have been prepared or signed;
• due diligence has commenced; and
• funding arrangements are progressing.

Once these steps are underway, the transaction is no longer simply exploratory as time and money are being invested. Once professional advisers have been engaged, expectations begin to harden.

At this stage, clarity around the legal structure and drafting responsibility is crucial. Without it, you can face:

• confusion over what has actually been agreed;
• delays caused by uncertainty as to who is preparing documentation;
• increased legal costs due to duplicated work; and
• risk that commercial assumptions are not properly recorded.

Early legal involvement helps ensure that what has been agreed in principle can be translated into a clear and enforceable document.

Who prepares the share purchase agreement?

In many SME transactions, the seller’s solicitors prepare the first draft share purchase agreement. This is often because the seller and their advisers are most familiar with the business, its corporate structure, its historic documentation and precisely what is being sold.

Preparing the first draft can also allow the seller to frame the transaction in a way that reflects their understanding of the business and the agreed deal structure.

However, this is not always the case. In some transactions, particularly buyer-driven processes or competitive acquisitions, the buyer’s solicitors may prepare the first draft. This can be common where:

• the buyer has greater bargaining power;
• the buyer is funding the transaction and driving the timetable; or
• the transaction forms part of a larger acquisition strategy.

What matters most is that responsibility for drafting is agreed at an early stage. Doing so avoids delay, manages expectations and ensures both sides can allocate resources appropriately.

Our corporate and commercial team regularly act for both buyers and sellers in SME transactions and can advise you strategically on the most appropriate approach for your position.

From first draft to completion

Once responsibility for drafting is agreed, the transaction typically progresses through a series of structured stages.

Draft preparation and review of agreement

The first draft share purchase agreement will set out the core commercial and legal terms of the deal, including:

• the shares being sold;
• the purchase price and payment structure;
• warranties and indemnities;
• limitations of liability; and
• conditions to completion.

The buyer’s solicitors will then review and propose amendments. This stage often involves detailed negotiation and careful consideration of risk allocation.

Negotiation of key commercial and legal terms

Negotiation is not simply about price. It often focuses on:

• the scope of warranties;
• financial thresholds and caps;
• deferred consideration or earn-out arrangements;
• restrictive covenants; and
• tax provisions.

For SME owners, this can feel intense. Our expert lawyers can guide you through the commercial objectives and the legal implications of each concession.

Completion of the disclosure process

Alongside negotiation of the share purchase agreement, the seller will usually prepare a disclosure letter. This is a critical document in which the seller discloses matters against the warranties given in the agreement.

The disclosure process requires careful management. It involves:

• reviewing company records;
• identifying potential risks or historic issues; and
• ensuring disclosures are clear, specific and properly evidenced.

Done properly, disclosure can significantly reduce the seller’s post-completion exposure to risk. Our corporate lawyers can draft the disclosure letter to best protect your interests.

How we can help

Negotiating a share purchase agreement is vitally important for SME business owners who may only sell or purchase a company once in their lifetime. Our corporate and commercial team provides clear, pragmatic advice at every stage of the process. We can assist with:

• advising at heads of terms stage;
• drafting and negotiating the share purchase agreement;
• managing the disclosure process; and
• coordinating due diligence responses.

We focus on protecting your commercial objectives whilst keeping the transaction proportionate and efficient.

From the initial handshake through to binding contract, careful legal guidance ensures that the deal you have worked hard to negotiate is properly documented and enforceable.

For advice on selling your business, please contact a legal adviser in our corporate and commercial team.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.