The share purchase agreement: where does the risk of the deal move?

A share or interest purchase agreement does not only transfer ownership; it is the instrument that allocates the risks of the period before the sale and after it. The buyer wants to know what he has actually bought and what will happen if liabilities appear that were not part of his valuation. The seller wants a final price, a clear end to his liability, and no open-ended claims left behind.

That is why there is no good SPA in isolation from due diligence, the structure of the company and its constitutional documents. The text follows the deal; not the other way round.

Is the deal a purchase of 100% of the interests? A controlling stake? A minority stake? Shares of a particular class? And does the seller hold them free of pledges or rights? The ownership details in the agreement must match the register, the statutory documents, the restrictions in the articles of association or constitution, and any shareholders' agreement.

In a limited liability company, the assignment of interests has statutory rules and procedures, and the other partners may hold restrictions or rights. It must not be assumed that signing the SPA alone completes the transfer of ownership as against the company and third parties.

The price may be fixed, or subject to adjustment on the basis of cash, debt and working capital, or use a locked-box or another commercial mechanism. The lawyer's job is not to set the financial figure, but to turn the agreed mechanism into rules that can be measured: the accounts date, the definition of debt, what counts as cash, treatment of transactions between related parties, and a mechanism for resolving an accounting disagreement.

Some deals are signed today and completed later once conditions are met. These conditions may include institutional or regulatory approvals, waivers of pre-emption rights, consents from lenders or counterparties, a restructuring before the sale, or remedying a violation found in due diligence.

You must specify who bears responsibility for each condition, the long-stop date, the level of effort required, and what happens if the condition is not met.

Representations and warranties are an allocation of information and risk. They usually cover title and authority, accounts and financial information, contracts, licences, employment, tax and zakat as the scope of the deal requires, disputes, intellectual property, data, assets and compliance.

But the value is not in the length of the list. A useful warranty is the one tied to what the review revealed and to what the buyer relied on in valuing the business, with a clear definition of knowledge, materiality and exceptions.

Disclosure is the practical counterpart of the warranties. If there is a dispute, a contract about to expire or an approval missing, it must be disclosed in the agreed way so that the buyer knows he is not receiving an absolute warranty that contradicts reality.

Good disclosure is specific and can be tied to documents. Putting thousands of files in a data room and then treating everything as "disclosed" may create a later dispute over whether the disclosure was adequate at all.

The agreement usually sets limits on claims: the minimum threshold, the overall cap, the time periods, the procedure when a third-party claim arises, and the liability of the sellers if there are several. A specific indemnity may be allocated to a known issue that is not to be left under the general warranties.

These clauses must be read with the law of contract and the rules on time-barred claims where relevant, and with any insurance, escrow or holdback agreed commercially.

Completion needs a clear list of documents: assignments and transfer of ownership, partners' or board resolutions, register updates, resignations or appointments, cancelling or issuing delegations, handing over books or system keys, repaying or releasing security, and any procedures with the relevant authorities.

In complex deals, a single closing checklist managed across the legal, financial and operational sides reduces the risk that the deal completes while a decisive element remains pending.

Transitional obligations may remain: handing over documents, assistance in transferring licences, transitional services, collecting old accounts, non-competition or non-solicitation, or later price adjustments. Each obligation must have a period, a person responsible and a mechanism for verifying it; otherwise the agreement stays open to daily operational discussions.

If the deal is at the term sheet or memorandum of understanding stage, this is the right time to build the list of issues that will move into the SPA: the price structure, conditions precedent, due diligence, warranties, limits of liability and completion. Postponing them to the final draft turns the commercial agreement into a second negotiation.