Share Purchase
A share purchase is the acquisition of a company by buying its shares from the shareholders, so that the buyer takes over the legal entity with everything in it — contracts, licences, staff, assets and liabilities, known and unknown. The share purchase agreement is the contract that sets the price, the warranties and the conditions of that transfer.
- Also known as
- Share purchase agreement, SPA, Stock purchase, Share deal
- Used at
- the binding stage of a deal, after due diligence
- Binding
- yes, from signing; completion may follow later, on conditions
- What transfers
- the whole company, liabilities included
- Regulatory
- a licensed fintech needs change-of-control approval before completion
- Parties
- the buyer and the selling shareholders (all of them, or enough to drag the rest)
How a share purchase works in practice
For a licensed fintech the share purchase is usually the only structure that works, because the licence belongs to the company and not to its assets. An e-money institution, a payment institution, a lender with a consumer-credit permission: each holds an authorisation that a regulator granted to that legal entity, and buying the shares keeps the entity — and its authorisation — intact. The price of that continuity is that the buyer also inherits everything the entity has done: the tax it has not paid, the merchant it has mis-sold to, the safeguarding shortfall from two years ago.
The share purchase agreement manages that inheritance in three ways. Warranties are statements about the company that the seller makes and the buyer can claim against if they turn out untrue, capped at a percentage of the price and limited in time. Indemnities cover the specific risks diligence found — a named tax exposure, a regulatory finding — pound for pound, outside the caps. And the price mechanism decides how the cash, debt and working capital at completion are settled: a locked box fixes the price to a historical balance sheet, completion accounts true it up afterwards.
Because a change of control of a regulated company needs approval, signing and completion are separated: the agreement is signed, the regulator is notified, and completion happens when — and only if — the approval arrives before the long-stop date.
Example
A buyer agrees to acquire 100% of the shares of a UK payment institution for £30m on a locked-box basis, with the accounts date three months before signing and a daily ticking fee of £4,000 for the seller's lost cash-flow. Warranties are capped at £3m (10% of the price) for 24 months, tax warranties for seven years; a specific indemnity of £1.2m covers a VAT assessment found in diligence. Completion is conditional on FCA approval of the change in control, which takes 71 days. On completion the buyer pays £30m plus £284,000 of ticking fee, and £3m of the price goes into escrow for 18 months.
Common mistakes
- Buying the shares of a company whose licence the buyer never checked would survive a change of control. - A warranty cap so low that the warranties are decorative, or so high that the seller refuses the deal. - Forgetting that the buyer inherits the past: unknown liabilities are why warranties, indemnities and insurance exist. - Signing with no long-stop date, so a slow regulatory approval holds both sides indefinitely. - Leaving a minority shareholder out, and discovering there is no drag-along right to bring them in.