Drafting the Sale and Purchase Agreement (SPA)

Selling your business is a major milestone, but the real work starts when you get to the legal paperwork. The Sale and Purchase Agreement (SPA) is the heart of the deal—it spells out what’s actually being sold, for how much, and on what terms. Get it right and you protect yourself, your legacy, and your future. Get it wrong and you could face disputes, liabilities, or even a collapsed sale. This in-depth guide covers exactly what UK small business owners need to know about SPAs: what they are, how they’re drafted, what to look out for, and how to avoid costly mistakes.

A Sale and Purchase Agreement (SPA) is the central legal contract that finalises the terms of selling your business. In the UK, this document formalises everything that’s been negotiated—price, assets, liabilities, conditions, handover, and future risks. It’s not just paperwork: the SPA is what actually transfers ownership and sets out the obligations of both buyer and seller.

Unlike a basic heads of terms or letter of intent, the SPA is legally binding. Once signed, both sides are committed to the deal as written—so it’s critical it reflects exactly what you’ve agreed. In practice, the SPA can run to dozens of pages, covering everything from payment mechanics to warranties, indemnities, restrictive covenants, and dispute resolution.

The SPA protects both parties. For sellers, it limits your future liabilities and clarifies your post-sale responsibilities. For buyers, it ensures they get what they paid for and have recourse if anything goes wrong. In the UK, failing to draft a robust SPA leaves you exposed to claims, misunderstandings, or even legal action down the line.

Every SPA must cover certain core elements to be effective and enforceable. Skimping on these details can lead to disputes or an unenforceable contract. The specific clauses needed depend on whether you’re selling shares (a share sale) or assets (an asset sale), but some fundamentals are universal.

The SPA should clearly define what is being sold—shares, assets, intellectual property, contracts, goodwill, etc.—and what is excluded. It must state the agreed purchase price, any adjustments, how and when payment will be made, and any deferred or conditional elements (such as earn-outs or retention amounts).

Crucially, the SPA must address warranties and indemnities, which protect the buyer from undisclosed issues and limit your liability as seller. Other vital provisions include restrictive covenants (to stop you competing), completion mechanics, employee matters (to comply with TUPE if assets are transferring), and dispute resolution. Without these, you could face claims, tax surprises, or post-sale headaches.

Drafting an SPA is a collaborative and often iterative process. Typically, the buyer’s solicitor produces the first draft, heavily weighted in the buyer’s favour. The seller’s solicitor then reviews and negotiates changes. This back-and-forth can take several weeks, especially if the deal is complex or contentious.

The process also involves significant disclosure—where you, as the seller, provide full details of the business’s affairs and flag any issues that could affect the buyer’s decision. This is called ‘disclosure’ and is usually formalised in a ‘disclosure letter’, which sits alongside the SPA. Failing to disclose problems can mean personal liability, even after the sale.

Both sides’ advisers will negotiate hard over risk allocation, especially on warranties, indemnities, and restrictive covenants. It’s essential to have experienced legal and tax advisers who understand not just the legal wording, but the commercial realities of your business and sector.

Many UK small business owners underestimate how tough SPA negotiations can get. One classic mistake is agreeing to broad, unlimited warranties—every statement you make about the business could come back to bite you if there’s an issue post-sale. Without proper limits, you may be personally liable for years.

Another pitfall is failing to disclose known issues. The UK legal principle of ‘caveat emptor’ (buyer beware) is tempered by your duty to make full, honest disclosure. Any skeletons in the cupboard—disputes, debts, tax problems—must be flagged in the disclosure letter. If you hide something, the buyer can sue for breach of warranty.

Poorly drafted restrictive covenants can also cause trouble. If they’re too broad, they may be unenforceable under UK law; too narrow, and the buyer’s business could be threatened. A good solicitor will help you find a fair balance that protects both sides.

• Never sign an SPA without independent legal advice—DIY templates often miss critical protections.
• Set clear financial caps and time limits on warranties and indemnities.
• Check employee transfer rules (TUPE) to avoid hidden employment liabilities.
• Clarify what happens with customer and supplier contracts—can they be assigned or do they need novation?

Warranties are statements you make about the state of the business—its accounts, assets, contracts, and more. In the UK, these are usually heavily negotiated and form the backbone of the SPA. If a warranty turns out to be untrue, the buyer can claim damages. Typical warranties cover things like ownership of assets, accuracy of accounts, no undisclosed liabilities, and compliance with laws.

Indemnities go further: they’re promises to reimburse the buyer for specific, identified risks (like outstanding litigation or tax disputes). Because indemnities are usually uncapped and more direct, they’re riskier for sellers. Most sellers try to limit these as much as possible, capping the amount and duration of liability.

To protect yourself, your solicitor will negotiate limits on both warranties and indemnities. Common limits include financial caps (e.g. no more than 50% of the purchase price), time limits (e.g. warranties last for 2 years, tax claims for 6 years), and disclosure of exceptions. Getting these limits right is crucial, especially for small business owners who may be personally exposed.

• Disclose all known issues in the disclosure letter to avoid warranty claims.
• Push for reasonable time limits—2 years for general warranties is typical.
• Insist on a financial cap, ideally no more than 50% of the purchase price.
• Clarify who controls any legal claims—buyer or seller—if an indemnity is triggered.

Staff issues are often the most complex part of a business sale. In the UK, if you’re selling assets (not shares), the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will almost certainly apply. This means employees automatically transfer to the buyer, preserving their terms and continuity of employment. See more about Understanding TUPE Regulations When Selling a UK Business.

The SPA must set out how employees will be handled: who transfers, who stays, what information will be given to staff, and who covers any redundancy, holiday pay, or pension liabilities. Failing to get this right can lead to claims at an employment tribunal, even years later.

Pensions are another minefield. If your business operates a defined benefit scheme, or if auto-enrolment duties aren’t up to date, you could be left with unexpected liabilities. Make sure pension matters are covered in detail in the SPA, and take advice from a pensions specialist if needed.

• List all employees transferring, including job titles, pay, and length of service.
• Disclose any staff disputes, grievances, or outstanding claims.
• Confirm pension scheme compliance and pass on all scheme documents.
• Allocate responsibility for any pre-sale employment claims in the SPA.

Buyers often insist on restrictive covenants to prevent you from setting up a competing business, poaching staff, or soliciting customers after the sale. UK courts will only enforce these if they’re reasonable in scope, duration, and geography. Overly broad covenants may be struck out entirely, leaving the buyer exposed.

Typical restrictive covenants cover non-compete (not setting up a rival business), non-solicit (not poaching staff or customers), and non-interference (not disrupting suppliers or contracts). The SPA must state clearly how long these will last (typically 12-24 months) and the geographic area covered (usually relevant to where the business operates).

Negotiating these covenants is a balancing act. Too onerous, and they may threaten your future plans or even be unenforceable. Too weak, and the buyer may see the business’s value at risk. A good solicitor will help craft restrictions that are tough enough to reassure the buyer but fair enough not to block your reasonable interests.

• Negotiate the shortest possible duration and narrowest geographic area.
• Define which customers and staff are covered—ideally only those active at sale.
• Check restrictions don’t prevent you from earning a living in your field.
• Ask for carve-outs for existing business relationships or passive investments.

Tax is one of the most complex and contentious parts of the SPA. The agreement must clearly spell out who is liable for what taxes, both pre- and post-completion. For example, if there’s a historic VAT or Corporation Tax issue, is it the buyer or seller who picks up the bill? Learn more about Tax Implications of Selling Your UK Business.

Completion accounts are often used to adjust the final price based on the business’s financial position at completion. This can include working capital, debt, or cash balances. The SPA should set out how these accounts will be prepared, by whom, and what happens if there’s a dispute.

Earn-outs (where part of the price depends on future performance) require especially careful drafting. The SPA must define how targets are measured, who controls the business during the earn-out, and what happens if targets aren’t met. Ambiguity here is a recipe for disputes.

• Engage a tax adviser early to structure the deal tax-efficiently.
• Define exactly how and when completion accounts will be prepared and agreed.
• Clarify responsibility for any tax audits or investigations started after completion.
• Insist on clear dispute resolution procedures for all financial adjustments.

The SPA will set out what needs to happen on the day the deal completes (known as ‘completion’). This includes signing documents, transferring funds, and handing over keys, passwords, contracts, and any other business assets. The SPA should list exactly what is to be delivered by each party, to avoid last-minute misunderstandings.

In some cases, completion is simultaneous with signing. In others, there may be a gap (known as ‘exchange and completion’). Be clear on what conditions must be met between signing and completion—such as regulatory consents, third-party approvals, or customer notifications. The SPA should specify who is responsible for each task and what happens if something goes wrong.

Post-sale, you may have continuing obligations—such as helping with the handover, assisting with customer introductions, or providing support during a transition period. The SPA should spell out the scope, timing, and any fees for your involvement, so expectations are clear and enforceable.

Don’t try to draft or negotiate an SPA alone. UK business sales are legally complex, and even experienced entrepreneurs rely on specialist solicitors, tax advisers, and accountants to get the details right. A good adviser doesn’t just draft documents—they spot commercial and practical risks you might miss.

Choose advisers with proven experience in UK business sales, ideally in your sector and for businesses of your size. The Law Society, Federation of Small Businesses, and local Chambers of Commerce can recommend suitable firms. Insist on clear, fixed-fee quotes to avoid runaway costs.

Stay actively involved throughout. Read every draft, ask questions, and make sure you understand the implications of every clause. Remember: your advisers act for you, but you’re the one who will live with the consequences of what’s agreed.

• Ask for plain-English explanations of every clause you don’t understand.
• Request a clause-by-clause review against the heads of terms.
• Get a tax clearance letter from HMRC if the deal involves complex reliefs (such as Entrepreneurs' Relief).
• Insist on regular updates and a clear action plan from your advisers.