Share sale

In plain English

In a share sale, the shareholders sell their shares and the buyer becomes the owner of the company. Contracts, staff, assets, bank accounts and liabilities all stay where they are, inside the company; only the ownership changes. This is the usual structure for agency and marketing services transactions, and the one most founders will encounter.

Why it matters

Because the buyer takes on everything, including liabilities it may not know about, share sales come with detailed due diligence and a sale agreement containing warranties and indemnities that give the buyer recourse if things turn out to be different from what was represented. The document is often called a share purchase agreement, or SPA.

For sellers, a share sale is usually cleaner than an asset sale: the whole business goes, there is no company left to wind up and, depending on jurisdiction, the tax treatment for individuals may be more favourable. Tax advice is essential either way.

What to watch for

• All shareholders need to sell, or the agreement needs to deal with those who do not. Option holders and minority shareholders should be identified early.
• The price for the shares is the equity value, derived from enterprise value by adjusting for cash, debt and working capital.
• Warranties, indemnities and any retention or escrow arrangements are negotiated alongside price and structure.

Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.