Drafting a Share Purchase Agreement (SPA): what belongs in it

Drafting a share purchase agreement (SPA) revolves around four building blocks: the purchase price and the price mechanism, the representations and warranties, the indemnities, and the completion with its suspensive conditions. The SPA is the English-language purchase agreement for shares, common in international acquisitions, and allocates all risks between buyer and seller. For shares in a Dutch BV, the SPA regulates the obligation to deliver, while the transfer of ownership takes place via a notarial deed (Art. 2:196 BW). The Dutch-language equivalent, the share purchase agreement, has the same building blocks. What it should contain is listed below.

The short answer

• Parties and object: seller, buyer and the precise shares being transferred.
• Price: purchase price plus mechanism, locked box of completion accounts.
• Guarantees: representations and warranties over the company.
• Indemnities: indemnities for known or estimated risks.
• Completion: suspensive conditions, delivery and the notarial deed.

Drafting a Share Purchase Agreement for Spa: the structure

In international practice, a SPA follows a fixed structure. At the top are the parties, the definitions, and the object: which shares are being sold and delivered. These are followed by the purchase price and the pricing mechanism, the warranties and indemnities, the arrangements for the period between signing and completion, and finally, the provisions regarding applicable law and disputes. Because the SPA distributes all risks between the parties, the text is often extensive and precisely formulated.

With Dutch shares, take into account the interaction with the notary. The SPA creates the obligation to transfer; the actual transfer of BV shares takes place via a notarial deed (Art. 2:196 BW) and the blocking provision in the articles of association (Art. 2:195 BW). Align the SPA and the deed of transfer so that completion and the notarial transfer coincide.

Price and price mechanism

The price is more than an amount. The mechanism determines when the price is fixed and who bears the risk of value change between the reference date and delivery.

• Locked box: a fixed price based on a balance sheet as of a reference date in the past. The risk and the result pass to the buyer from that date. Simple and secure, but requires trust in the figures.
• Completion accounts: the price is adjusted retrospectively based on the figures at the delivery date, for example for working capital and net debt. More accurate, but more labor-intensive and sometimes a source of discussion.
• Earn-out: part of the price depends on future results. Binds the seller, but requires clear measurement agreements.

Warranties, indemnities and limitations

This block determines who bears which risk.

1. Representations and warranties: guarantees regarding ownership of the shares, the annual accounts, taxes, contracts, personnel, and permits.
2. Indemnities: safeguards against specific risks, such as an ongoing dispute or a tax position, whereby the risk accrues to the seller in advance.
3. Disclosure letter: the seller discloses known deviations from the warranties, which thereby fall outside the scope of liability.
4. Limitations: thresholds, ceilings, and time limits that determine from, up to what amount, and for how long the seller is liable.
5. W&I insurance: for larger deals, insurance that covers breaches of warranties.

Completion and conditions

Between signing and completion, conditions often still need to be met. Include conditions precedent, such as approval by a supervisory authority, consent from a bank, or the conclusion of a blocking procedure. Describe which actions take place upon completion: payment of the purchase price, execution of the notarial deed of transfer, and transfer of management. Consider a MAC (material adverse change) clause that allows the buyer to withdraw in the event of a significant adverse event prior to delivery. Finally, determine the applicable law and the forum; for a Dutch company, Dutch law is the obvious choice for the corporate law aspects.

A practical example

A Dutch family-owned BV sells its manufacturing company to a foreign investor. The advisors draft an English-language SPA with a locked-box price as of December 31, extensive representations and warranties, an indemnity for soil contamination discovered during due diligence, and W&I insurance covering the warranties. The conditions for precedent are the approval of the bank and the completion of the blocking arrangement. Upon completion, the notary executes the deed of transfer and the price is paid. Because the known soil risk has been assigned via an indemnity and the remainder is covered by the insurance, the family ensures a clean exit.

Honest recommendation

A lawyer is not always necessary. If you sell a small stake within an existing structure where a shareholders' agreement already sets out the price and terms, the transfer with the notary can proceed relatively smoothly. Drafting a share purchase agreement (SPA) yourself becomes risky as soon as it concerns a genuine acquisition, and certainly when a foreign party and international law come into play. The biggest pitfalls lie in the guarantees, indemnities, liability limits, and applicable law. In that case, have the SPA drafted or reviewed, coordinate it with the notary before the transfer of the Dutch shares, and consider W&I insurance. If you contract entirely in Dutch, the share purchase agreement is an equivalent alternative with the same building blocks.

Also read the explanation of what a spa share purchase agreement is, view the spa share purchase agreement itself, and read what it costs to have one drawn up.

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