When selling your business, agreeing the price is just the start. The real work (and the real protection) lies in the details of the Sale and Purchase Agreement (SPA). This document governs not just the transfer of your company but also your risks, obligations, and even your peace of mind after the deal is done.
A well-drafted SPA is your best safeguard against misunderstandings, disputes, and costly surprises. Here are the key legal clauses every entrepreneur must understand, drawn from the practical frameworks of The Exit Roadmap by Chris Spratling.
1. The Price and Payment Structure
What it covers:
– Total purchase price and how/when it will be paid (lump sum, instalments, deferred, earn-out)
– Adjustments for working capital, debt, or cash on completion
– Timing of payments and any conditions attached
Why it matters: Clear payment terms protect you from disputes, late payments, or lost value if future conditions aren’t met.
2. Warranties and Representations
What it covers:
– Statements of fact you make about your business (e.g., accounts are accurate, no undisclosed liabilities, compliance with laws)
– Broad in scope, covering finance, contracts, tax, employees, assets, and more
Why it matters: If a warranty proves incorrect post-sale, the buyer may claim compensation. Be transparent and make sure your disclosures (see below) are comprehensive.
3. Indemnities
What it covers:
– Specific promises to compensate the buyer for known risks (such as pending litigation, tax investigations, or environmental issues)
– Usually linked to items disclosed during due diligence
Why it matters: Indemnities ringfence particular risks for the seller, so only agree to what you fully understand and can manage.
4. Disclosure Letter
What it covers:
– The formal document where you declare exceptions to the warranties in the SPA
– Lists known issues, ongoing disputes, or anything not exactly as warranted
Why it matters: Thorough, honest disclosure protects you from future claims. If a problem is disclosed, the buyer generally cannot later claim against that issue.
5. Restrictive Covenants
What it covers:
– Prevents you from competing, soliciting customers/staff, or setting up a rival business for a defined period and geography
Why it matters: Buyers want protection against immediate competition from you post-sale. Covenants should be reasonable in scope and duration; negotiate if they are overly restrictive.
6. Completion and Post-Completion Obligations
What it covers:
– Mechanics for transferring ownership (share certificates, resignations, handover documents)
– Any ongoing consultancy, training, or handover periods
– Settlement of intra-group balances or debt
Why it matters: Well-defined completion mechanics ensure a smooth handover and avoid disputes about who is responsible for what, and when.
7. Limitation of Liability
What it covers:
– Caps your liability for breaches of warranties or indemnities (e.g., maximum claim amount, time limits for bringing claims)
Why it matters: Protects you from open-ended risk after the sale. Typical limits are linked to the sale price, with shorter windows for minor claims.
8. Governing Law and Dispute Resolution
What it covers:
– Sets out which country’s laws apply, and how disputes will be resolved (courts, arbitration, mediation)
Why it matters: Ensures clarity and certainty if issues arise—especially important in cross-border deals.
Final Thoughts: Details Protect Value
Every word of your SPA matters. Don’t leave it to chance—work with experienced legal advisors, understand what you’re signing, and never be afraid to negotiate terms that genuinely protect your interests.
Your Exit Starts Here
If you’re wondering whether you’re truly ready to sell, don’t leave it to chance. Take the Exit Readiness Survey today at www.chalkhillblue.org/exitreadiness-survey and get a clear picture of where you stand, and what to do next.
Looking for the complete roadmap to a successful exit? Order The Exit Roadmap by Chris Spratling on Amazon – a practical, step-by-step guide for ambitious entrepreneurs ready to maximise value, minimise stress, and exit on their own terms.
For more insights and real-world advice, follow Chris Spratling on LinkedIn. Start your journey to a successful exit with clarity and confidence.
