The Structure of an SPA: A Guide for Entrepreneurs and Owners

Understand the essential components of a Share Purchase Agreement – and why every clause counts.

Why the SPA is the central lever of every transaction

Buying or selling a company is one of the most significant decisions in an entrepreneur's life. At the heart of this transaction is a document that often comprises 50, 100 or more pages: the Share Purchase Agreement (SPA).

For many business owners, this document initially appears to be an impenetrable web of legalese and technical terms. In reality, however, a SPA is neither an end in itself nor a purely formal construct. Rather, it is a structured attempt to translate a business agreement into a legally sound system of rights, obligations, and risk allocations.

Anyone who understands this structure quickly realizes: The SPA is not just an accompanying document to the transaction – it is its foundation.

The introduction: Preamble and definitional framework

Every SPA begins with the preamble. It may seem unassuming, but it fulfills a crucial function: it defines who is contracting with whom and what the core issue is. Buyer and seller are clearly identified in legal terms, often supplemented by other parties such as guarantors. Precision is paramount here – an imprecise description of the parties can later lead to significant uncertainties.

At the same time, the subject of the transaction is outlined. It is clarified that it involves the acquisition of shares in a specific company – and not an asset deal. Even though this description is still on a rather abstract level, it sets the framework for everything that follows.

The definition section typically follows immediately. In a document of this length and complexity, it is essential that key terms are clearly defined. Terms such as "purchase price," "closing," or "working capital" are not everyday terms but have specific economic meanings.

Experience shows that many subsequent disputes stem not from a lack of agreement, but from differing understandings of what was actually agreed upon. The definition section prevents precisely this – it creates a common language.

The object of purchase: precision instead of assumptions.

Once the parties and terms have been clarified, the actual core of the transaction comes into focus: What exactly is being sold?

Especially in the German context, and particularly with limited liability companies (GmbHs), the utmost precision is required. It is not sufficient to speak generally of "shares." Rather, the shares must be clearly identifiable – typically through their consecutive numbers, nominal values, and their allocation in the shareholders' list.

Furthermore, it is determined whether all shares are transferred or only a part, whether special rights are associated with them and whether there are restrictions on disposal, for example through the articles of association.

The legal status of the shares is also of central importance. The buyer will insist that they are transferred free of third-party rights – in particular, that they are not encumbered and that there are no disputed claims that could impair their value or transferability.

This section in particular demonstrates how deceptively simple questions can be in M&A. The seemingly trivial question "What is being sold?" ultimately determines the economic substance of the entire transaction.

The purchase price: More than just a number

The question of the purchase price is naturally central to every transaction. But the SPA quickly shows that it's not just about a number, but about a system.

In its simplest form, a fixed purchase price is agreed upon. In practice, however, the arrangements are often much more complex. Purchase prices are linked to conditions, for example through earn-out mechanisms, where a portion of the purchase price depends on the future performance of the company.

In addition, purchase price adjustments are made to ensure that the company's financial condition at the time of closing is taken into account. Concepts such as net debt or working capital form the basis for adjustment mechanisms that can significantly influence the final purchase price.

Last but not least, the payment structure plays a role. Is the purchase price paid in full at closing or is part withheld? Such retentions regularly serve to secure the buyer's claims and are practically indispensable in practice.

All of this shows that the nominal purchase price is rarely identical to the economic result of the transaction.

Signing and Closing: The Critical Intermediate Phase

A key characteristic of many transactions is the separation between signing and closing. While the contractual agreement is reached during signing, the transaction is actually completed during closing.

In between lies a phase that is often underestimated. During this time, prerequisites must be met, such as regulatory approvals or corporate consents. At the same time, the company remains under the seller's responsibility.

The SPA therefore regulates in detail which steps must be taken during closing – from the transfer of shares to the payment of the purchase price. In practice, closing today often takes place purely technically, without the physical presence of the parties.

This phase is not only organizationally demanding but also legally sensitive. It is at this stage that it is decided whether an agreement becomes a finalized deal.

Guarantees and indemnities: Buyer protection

A key component of every SPA (Spanish Limited Partnership) is the seller's guarantees. These cover the condition of the company – from its legal existence and financial situation to existing contracts and potential legal disputes.

The buyer relies on these assurances. If they subsequently turn out to be inaccurate, claims for damages regularly arise.

However, in practice, guarantees are never unlimited. They are limited in time, restricted by disclosures, and structured by liability mechanisms. The disclosure letter, in particular, plays a central role here: what is disclosed therein generally cannot be claimed later.

Closely related to this are indemnities. While warranties are based on the inaccuracy of statements, indemnities relate to specific, known risks. The seller undertakes to protect the buyer financially from these risks.

This combination of guarantees and indemnities forms the backbone of the risk distribution in the SPA.

Covenants and Closing Conditions: Controlling the Transaction

Besides safeguarding the past, the SPA also regulates the future – especially the phase between signing and closing.

Covenants oblige the seller to continue operating the business in its ordinary course of business until closing and not to make any material changes without consent. They serve to stabilize the company's financial condition.

These are supplemented by closing conditions, i.e., conditions under which the transaction must actually be completed. In German practice, these are primarily regulatory approvals and corporate law consents.

Unlike in Anglo-American contracts, broad MAC clauses play a significantly smaller role here. They are typically narrowly formulated and only apply in exceptional cases.

Non-compete clauses and final provisions: Looking beyond the closing

The SPA remains in effect even after closing. Non-compete clauses are intended to prevent the seller from directly competing with the sold company. At the same time, these provisions must be proportionate to be legally valid.

Finally, the concluding provisions form the legal framework of the contract. They regulate, among other things, the applicable law, the place of jurisdiction, and the form of any contract amendments.

What appears technical at first glance can be of crucial importance in a dispute – especially when enforcing claims.

Conclusion: The SPA as a strategic instrument

A share purchase agreement is far more than a legal document. It is the structured representation of a business agreement – and at the same time the central instrument for managing the purchase price, risk, and control.

Understanding the logic of a SPA allows you not only to better manage transactions but also to actively shape them. And that's precisely the difference between a formally completed transaction and a truly successful one.

A carefully negotiated SPA is ultimately not just a safeguard – but a significant contribution to the economic success of the deal.