The Share Purchase Agreement (SPA)

The Share Purchase Agreement (SPA)

A Share Purchase Agreement (SPA) is a central document in transactions involving the sale of shares. The key functions of the SPA include:

Detailing the terms of the transaction: The SPA should define what is being purchased, by whom, for how much, and any other responsibilities and obligations related to the transaction. Stating the conditions of the transaction: Sometimes, the completion of the sale may be subject to certain events, such as obtaining shareholder approval or regulatory clearance.

Mitigating transaction risks: The buyer often seeks comprehensive warranties and indemnities in the SPA to ensure contractual protection against undisclosed risks or underestimated liabilities.

Protecting the buyer against post-transaction competition: The buyer typically imposes contractual restrictions (restrictive covenants) on the seller to prevent them from establishing a competing business after the transaction.

Structure and Content of an SPA

In bilateral transactions, the initial draft of the SPA is typically prepared by the buyer. On the other hand, in a competitive sale process, the SPA is usually drafted by the seller’s lawyers as the seller leads the competitive process. This means that the initial draft of the SPA will likely be more favorable to the seller, with less difficult seller warranties and broader limitations of liability.

Although there is no legal requirement for an SPA to follow a specific form, most SPAs include the same basic provisions and follow a similar order:

Parties involved.

• Agreement to buy and sell shares.
• Cost and payment mechanisms, often subject to adjustments or earn-out provisions.
• Closing conditions, such as shareholder approval, acquisition financing, and regulatory clearances.
• Closing procedures and deliverables.
• Seller’s pre and post-closing obligations.
• Buyer protection provisions.
• Seller’s limitations of liability regarding warranties and indemnities.
• Confidentiality and notice clauses.
• Standard provisions (such as specific performance, termination, assignment, amendments, cost, and entire agreement).
• Applicable law and jurisdiction.
• Electronic signature clause.
• Date and signature blocks.

Additionally, the SPA may contain several appendices or related documents:

Warranties in SPAs

The warranties provided by the seller in an SPA are typically drafted in broad and absolute terms. It is unlikely that all warranty statements are entirely true and accurate.

To the extent the seller is aware of any matter or circumstance that renders any of the warranties untrue, it is customary for the seller to record this information in a disclosure schedule. The buyer generally agrees in the main body of the SPA that no liability arises under the warranties when information has been properly disclosed in this manner.

In the disclosure schedule, the seller usually specifies that the warranties are subject to the official disclosure of certain facts, with the purpose of the buyer agreeing not to bring claims or seek compensation based on these disclosed facts. Disclosures are typically presented in an appendix or schedule attached to the SPA.

Alternatively, disclosures can be made in a separate disclosure letter. This practice is less common in France but may occur when a foreign party is involved.

In processes with competitive bidding, the entire data room and the seller’s due diligence reports are considered disclosures against the warranties.

Seller disclosures serve two key purposes:

• Provide additional information to the buyer about the target company. The disclosure process often reveals additional information that may not have been provided during the buyer’s due diligence.
• Protect the seller from warranty claims regarding the disclosed facts.

Contractual Specifics for the Sale or Acquisition of a Company with Real Estate Component

In the sale of a real estate company, it is customary for the buyer to receive certain contractual warranties from the seller for a defined period. These warranties typically cover:

• The financial position of the company at the time of the transfer, as reflected in the annual accounts or interim financial statements used to calculate the provisional purchase price.
• Any unforeseen financial implications for the acquired company. This could include events or situations prior to the transfer that were unknown at the time but subsequently materialize, resulting in an increase in liabilities or a decrease in assets compared to the reference accounts. Tax adjustments and legal disputes are examples of such implications.
• Various statements made by the seller concerning the company, including its assets and liabilities.

To ensure the effectiveness of these warranties, they should be carefully drafted considering the following key points:

Defining the guaranteed risks.

• Identifying the beneficiary of the warranty and the type of compensation.
• Determining the assessment of damages. Securing payment of the compensation.

The seller often provides representations and warranties regarding both the acquired company and its real estate assets.

It is also advisable for the seller to negotiate certain elements such as the duration of the warranty agreement, a deductible, a threshold for triggering liability, and a cap beyond which the seller is no longer responsible.

Contact us and present your project for the acquisition or divestment of real estate or businesses.