What Is a Spa in Selling a Business? Understanding the Sales and Purchase Agreement (SPA)

Overview of SPA

A sales and purchase agreement (SPA) obligates a buyer to buy and a seller to sell. An SPA outlines due diligence periods, conditions to be met before the sale, and available remediation if the product is damaged. Once signed, the SPA is legally binding.

Key Elements of an SPA

The SPA should describe the assets being sold and purchased. It must specify the total purchase price, currency, and price adjustments. The SPA details payment terms, who pays commissions, and integrates assets, obligations, connections, and contracts. It sets out agreed elements and provides a legal framework to complete the sale.

Legal Framework and Protections

Warranties in a SPA protect the buyer against unknown liabilities. The SPA is also a framework for negotiation. Creating the SPA requires guidance from knowledgeable counsel.

Application in Different Business Areas

SPAs are typically used in real estate but found in all business areas. In a SPA, the seller promises to pay money to the buyer if a specified event causes post-acquisition loss.

Transaction Details

In practice, the Buyer is required to pay 10% of the Purchase Price upon signing of the SPA. In the event that the Buyer breaches the SPA, the amount paid to the Seller will be forfeited.

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