Share purchase solicitors in Scotland

How a share purchase works

In a share purchase the buyer acquires the shares in the company that owns the business, rather than the business assets themselves. The company carries on as before, with the same contracts, employees, property and liabilities. Only its owners change.

That continuity is attractive because contracts and licences usually stay in place without needing to be transferred, although some contain change of control clauses that need the other party’s consent. The trade-off for the buyer is that the company’s past comes with it, so careful due diligence and strong contractual protection are essential.

What the share purchase agreement covers

The share purchase agreement sets out the terms of the deal and is the main document both sides negotiate. It usually covers:

• The shares and the priceWhich shares are being sold, the price and how it is paid, including any deferred or earn-out payments.
• Price adjustmentWhether the price is adjusted by completion accounts or fixed using a locked box date.
• WarrantiesStatements by the seller about the company, such as its accounts, contracts, employees, tax and property.
• IndemnitiesPound for pound protection against specific known risks, such as a tax issue or a dispute.
• Limits on claimsTime limits, financial caps and thresholds that control the seller’s exposure.
• Restrictive covenantsRestrictions on the seller competing with the business or approaching its staff and customers.
• CompletionThe conditions that must be met and the documents to be delivered on the day.

The seller’s disclosure letter sits alongside the SPA. It sets out exceptions to the warranties, and anything fairly disclosed generally cannot later be the subject of a warranty claim.

Why due diligence matters

Due diligence is the buyer’s investigation of the company before committing. It looks at the company’s financial health, contracts, employees, property, intellectual property, disputes, regulatory position and tax. It is particularly important when buying a majority or the whole of a company, as the stakes are higher.

We review the information in the data room, raise questions, report the risks clearly and use what we find to shape the warranties, indemnities and price. For sellers, we help prepare in advance so the process runs quickly and fewer issues come up late.

Completion and afterwards

At completion the buyer pays the price and the seller delivers signed stock transfer forms, resignations of outgoing directors and the company’s records. We then deal with the follow-up, including:

• Updating the register of members
• Stamp Duty on the stock transfer forms
• Director changes at Companies House
• Identity verification for new directors
• Updating people with significant control
• Releasing or replacing personal guarantees
• Notifying banks, landlords and key contacts