The share purchase agreement (SPA)

The process of acquiring a company consists of several phases, starting with the preparatory stage and continuing through due diligence. Once the due diligence is completed—providing insight into the condition of the target company—it becomes necessary to sign a share purchase agreement (SPA). This agreement sets out the terms and conditions under which the acquisition will take place.

Importance of the share purchase agreement (SPA)

The importance of drafting an SPA that regulates all relevant terms and conditions lies in the absence of specific regulation within the Spanish legal system for this type of transaction.

Given the lack of a specific legal framework, the parties must agree on the terms and conditions under the principle of freedom of contract, as established in Article 1255 of the Civil Code, which states: “The parties may establish such covenants, clauses, and conditions as they deem appropriate, provided they are not contrary to law, morals, or public order.”

Structure and key clauses of the share purchase agreement (SPA)

I. Form and validity

Although Article 51 of the Commercial Code states that “Commercial contracts, regardless of the form, language, type, or amount involved, shall be valid and enforceable in court, provided their existence can be proven by any means recognized under civil law,” in practice—and given the importance of such agreements—it is essential for the SPA to be in writing and notarized to ensure legal certainty.

II. Table of content

An SPA contains a large number of clauses and annexes, as each term is individually negotiated. It is therefore crucial to include a table of contents to organize the clauses and facilitate review.

III. Parties involve

The seller(s) and buyer(s) must be properly identified, ensuring they have the legal capacity to enter into the agreement.

Additionally, if there are guarantors or third parties whose consent is required or who must waive certain rights, they must be included as parties to acknowledge and accept the relevant terms and conditions.

IV. Definition

It is important to include a definitions section at the beginning of the contract to clarify key terms. These definitions help avoid ambiguities and ensure that the parties interpret terms consistently, providing legal clarity and protection.

V. Recitals

This section sets out the background of the agreement. All statements, facts, and circumstances included here are presumed to be accurate and true.

VI. Purpose of the agreement

The purpose may be the acquisition of specific assets or the purchase of shares or equity interests. It is important to define the object carefully, especially because—as explained in the “Representations and warranties” clause—the Civil Code only guarantees the sold object (e.g., shares), but not the actual condition of the acquired company.

VII. Price

The purchase price is often one of the most heavily negotiated clauses and may be fixed or variable:

1. Fixed price: This can involve either an upfront payment or a fixed price subject to post-closing adjustments.
   
   a) Upfront payment: A set price is agreed upon, regardless of future variables. Buyers may attempt to defer part of the payment to use it as security for potential contingencies.
   
   b) Fixed price with post-closing adjustments: A fixed price is agreed, with adjustments made based on differences between the seller-guaranteed financial statements and the actual ones reviewed post-acquisition.
   
   
   
2. Variable price:
   
   a) Earn-out: A variable price based on the company’s future EBITDA, operating profit, or other financial indicators. EBITDA-based earn-outs are the most common.
   
   b) Completion accounts: A provisional price is agreed upon. After the acquisition, one of the parties—typically the buyer, assisted by auditors—prepares closing financial statements and determines the final price according to previously agreed parameters.
   
   

The purchase price will then be adjusted based on the difference between the completion accounts and the financials used to set the provisional price.

VIII. Interim management

This clause is crucial in agreements where completion is subject to conditions precedent. It governs the seller’s authority to continue managing the company while those conditions are pending. The clause should limit management actions to the ordinary course of business.

It is essential to avoid wording that could suggest the buyer has acquired control of the company prior to obtaining clearance from the National Commission on Markets and Competition (CNMC), which might otherwise consider the transaction completed without its authorization.

IX. Conditions preceden

Some transactions may require third-party approvals. This clause establishes the scenarios in which the deal is conditional upon obtaining such consents.

X. Representations and warranties

Here, the seller makes declarations regarding the company’s condition and guarantees their accuracy.

This clause is essential in share deals, particularly since the Civil Code only guarantees the sold object (i.e., the shares or interests), but not the state of the underlying business. As such, company assets are not covered by the statutory warranty unless expressly included in the agreement.

A detailed representations and warranties clause helps extend the scope of protection to include the company’s assets, offering the buyer greater legal certainty.

As illustrated, a share purchase agreement can be highly complex. For that reason, Devesa has a team of legal professionals specialized in corporate law, capable of addressing all key aspects of buying or selling a company.

Do you need advice? Access our areas related to the sale and purchase of companies:

Commercial and corporate law