Protecting Your Interests in a Share Purchase Agreement

This is exactly how sellers get screwed.

A Share Purchase Agreement isn’t just legal paperwork. It’s your insurance policy when everything goes wrong.

And trust me, things go wrong.

When you sell your business, you’re handing over the keys to someone else. Once that happens, you lose control. If your agreement doesn’t protect you, you’re completely exposed.

The legal complexities involved in share transfers require specialized expertise, which is why consulting with experienced professionals like paduffy-solicitors.com becomes crucial for navigating the intricate requirements and ensuring your interests remain protected throughout the transaction process.

Want to know how bad it gets?

40% of deals don’t close on time. Many never close at all.

The ones that do close? They often leave sellers with massive liabilities they never saw coming.

But here’s the good news…

Smart sellers know how to structure their agreements to avoid these traps.

The 3 Hidden Risks That Will Destroy Your Deal

Here are risks nobody talks about…

Risk #1: Unlimited Warranty Exposure

Every Share Purchase Agreement contains warranties.

These are promises you make about your business. Most sellers think they’re just promising their books are accurate.

Wrong.

You could be guaranteeing everything from employment law compliance to environmental regulations. One small problem can cost millions.

Here’s the kicker – most warranties have no time limits and no financial caps.

That means you could be liable forever, for unlimited amounts.

Risk #2: One-Sided Indemnification

Indemnification clauses are where deals get really dangerous.

These make you responsible for problems that surface after closing. But here’s what most sellers don’t realize…

Standard indemnification clauses are completely one-sided. You indemnify the buyer for everything. The buyer indemnifies you for nothing.

This is insane.

Risk #3: Due Diligence Gaps

Due diligence is supposed to protect everyone.

In reality, it’s often rushed and incomplete. Buyers miss important issues because they’re trying to meet artificial deadlines.

When problems surface later, guess who gets blamed?

You do.

The global M&A market is projected to reach $2.41 trillion in 2025. That means more businesses than ever are going through this process.

Don’t let yours become another disaster story.

Essential Protections Every Smart Seller Uses

How to protect yourself…

Cap Your Warranty Exposure

Never give unlimited warranties. Ever.

Every warranty needs clear boundaries:

• Time limits: 12-24 months maximum
• Financial caps: Never more than 20% of deal value
• Materiality thresholds: Set a minimum of $50,000 before claims trigger

After the warranty period expires, the business becomes the buyer’s problem. Not yours.

Demand Mutual Indemnification

Standard agreements make you indemnify the buyer for everything.

This is ridiculous.

Demand mutual indemnification instead:

• You indemnify them for pre-closing problems
• They indemnify you for post-closing problems they create
• Both parties have clear notice requirements
• Both parties get the right to defend claims

Fair is fair.

Use Disclosure Letters

Here’s a simple trick that avoids most warranty claims…

Disclose everything.

Create a comprehensive disclosure letter covering every potential issue. Once something is disclosed, the buyer can’t claim they were surprised.

The rule is simple: when in doubt, disclose it.

Structure Escrow Protections

Smart sellers never let buyers keep all the money at closing.

Instead, put 10-20% into an escrow account. This money secures any warranty claims.

Here’s the beautiful part…

If the escrow contains $500,000, that’s your maximum exposure. Period. Doesn’t matter what the buyer discovers later.

How To Structure Your Agreement Like A Pro

Due diligence isn’t something that happens to you.

You need to control this process:

Organize Your Data Room

Don’t dump everything into folders and hope for the best.

Structure information logically. Make it easy for buyers to find what they need.

The smoother due diligence goes, the less likely buyers are to look for problems that don’t exist.

Address Problems Early

Know about issues? Deal with them upfront.

When you identify problems and propose solutions, you stay in control. When buyers discover problems themselves, you lose negotiating power.

Document Everything

Keep detailed records of every due diligence interaction.

If disputes arise later, you’ll need proof of what was discussed and when.

Negotiation Tactics That Actually Work

The negotiation phase is where deals get won or lost.

Start With Market Standards

Don’t reinvent the wheel. Begin with standard market terms, then negotiate the important stuff.

Your lawyer should have current templates. Use them as your baseline.

Focus On What Matters

Not every clause is worth fighting over.

Focus on:

• Purchase price structure
• Warranty caps and time limits
• Indemnification terms
• Escrow amounts

Know When To Walk

The best negotiating position? Being willing to walk away.

If buyers won’t provide reasonable protections, consider whether the deal is worth the risk.

Sometimes the best transaction is the one you don’t do.

Mistakes That Cost Sellers Millions

Here are the mistakes I see repeatedly…

Ignoring Standard Clauses

“Boilerplate” language can contain massive traps.

Every single clause needs review. Standard legal language might be shifting huge risks onto you.

Rushing To Close

Deal closing times increased 11% between 2018 and 2022 for good reason.

Complex deals take time to structure properly. Don’t let artificial deadlines pressure you into bad terms.

Focusing Only On Price

Price isn’t everything.

A lower price with solid protections beats a higher price with unlimited liability every time.

Ignoring Post-Closing Relationships

Your relationship with the buyer doesn’t end at closing.

You might be working together for years while warranty periods run out. Structure terms that won’t create unnecessary conflict.

Advanced Protection Strategies

For bigger deals, consider these advanced moves…

Representations and Warranties Insurance

This insurance covers warranty claims instead of making you pay.

Not cheap, but worth it for deals above $50 million or unusual risk situations.

Earn-Out Structures

Tie part of the price to future performance.

This bridges valuation gaps while protecting you from buyer mismanagement.

Employment Protection

Staying with the business post-closing? Your employment agreement becomes part of your deal protection.

Make sure the terms are fair and you’re protected against termination without cause.

Wrapping This Up

Protecting your interests in a Share Purchase Agreement isn’t complicated.

But it does require attention to detail.

The stats don’t lie – most deals fail because someone didn’t do their homework. Don’t let that be you.

Remember the key principles:

• Cap warranty exposure with time limits and financial boundaries
• Demand mutual indemnification instead of one-sided terms
• Disclose potential issues to avoid later claims
• Use escrow accounts to limit post-closing exposure
• Control due diligence instead of letting it control you

The M&A market keeps growing. More opportunities than ever before.

But with opportunities come risks.

The right Share Purchase Agreement protects you from those risks while letting you capture the value you’ve built.

Don’t let poor contract terms turn your exit into a nightmare.

Get it right the first time.