Ireland: Share Purchase Agreements - The New And The Old Revisited

Last Updated: 29 July 2015
Article by Hogan Dowling McNamara

In El Makdessi v Cavendish Square Holdings BV and another [2013] EWCA Civ 1539, the Court of Appeal in the UK held that clauses in a share purchase agreement providing that, if the seller breaches restrictive covenants, the buyer's obligation to pay deferred consideration would cease and the buyer would be entitled to acquire the remainder of the seller's shares at price based on net asset value (and excluding goodwill), were unenforceable penalties.  The case suggests that a careful approach will be required where a buyer of shares wants to link payment of deferred consideration to the seller's compliance with non-compete or similar covenants following completion of the transaction.

The attached checklist highlights the main legal risks that a buyer should consider when buying another business or enterprise. Legal advice should always be sought.  This checklist does not explore the legal issues behind the list and is intended to outline the process and identify key points to watch out for.   

Buying a business: Your legal checklist

This checklist highlights the main legal risks to consider when buying another business or enterprise. A buyer should always take legal advice at the outset of any acquisition.

Structuring the acquisition

A buyer can buy either the shares of the company that owns the target business or simply buy the assets which make up that business:

  • Share purchase. The buyer buys the whole company (including liabilities that it may not know about).
  • Asset (or business) purchase. The buyer chooses the assets that it wants to buy. This will provide more flexibility, but it can be complicated to identify and transfer specific assets.

Tax and accounting issues

Check how any goodwill on the acquisition is likely to be treated for tax and accounting purposes. Asset deals are typically less tax efficient for sellers than share deals, which can affect the price the buyer pays.

Deal breakers


If a buyer buys a business as a going concern (even via an asset purchase), it must take on its employees on their existing contract terms.


The buyer may have to take over the target company's existing pension arrangements or offer prescribed pension arrangements to transferring employees.

Intellectual property rights

A brand, trade mark or patent may be the most valuable asset of the target business. Take legal advice to check that the target business:

  • Owns the rights.
  • Has adequately protected the rights.
  • In the case of asset sale, can transfer the rights to the buyer.

Environmental issues

The buyer could face huge liabilities (possibly including criminal liability) if it buys contaminated land or a company that caused or allowed contamination.

Shared assets

If the target business is part of a larger corporate group, it may share assets (such as computer systems, property and insurance policies) with other group members. Consider whether these arrangements can be unravelled without incurring prohibitive costs or disruption to the target business. An agreement can be drafted to deal with how the assets are divided and shared after the completion of the sale.

Key staff

Consider whether the buyer wants to incentivise or tie in key staff or management on special terms.

Consents and third party approvals

  • The acquisition may need the approval of third parties (for example, industry regulators) or require approval from competition authorities. Consider when to approach them and whether the transaction is likely to get their consent.
  • If the buyer is acquiring all the shares in the target company, check that no important contracts can be terminated on a change of control.
  • The transaction may require approval from either the buyer's or the seller's shareholders. 

Early stage negotiations: key points to remember

  • Make sure that the person the buyer is negotiating with has the authority to talk to the buyer and has the power to provide the information the buyer requires.
  • If the seller or the target company is a competitor, the buyer must take legal advice before starting any discussions or exchanging information. Sharing business sensitive information is risky as it could lead to a breach of competition law, and potentially a large fine for the buyer.
  • Avoid making a legal commitment by mistake. A binding deal can be made without anything in writing (even through a conversation). When talking or writing, make sure the seller is aware that nothing is legally binding until the formal acquisition agreement has been signed (for example, mark correspondence "subject to contract").

Process and documents


Acquisitions can be complex, involve a lot of people and take a long time to complete. Make sure the buyer compiles a detailed plan with key deadlines and responsibilities.

Confidentiality agreement

Acquisitions are highly business sensitive. Sign a confidentiality agreement (also called a non-disclosure agreement) at an early stage. This will generally require both parties to keep the deal secret until it is formally announced and protect any information exchanged by the parties. A buyer should take legal advice before signing a confidentiality agreement to ensure that its position is adequately protected and its obligations under the agreement are reasonable.

Heads of terms

Heads of terms are usually signed at an early stage of a deal before detailed due diligence. They may also be known as:

  • Heads of agreement.
  • Memorandum of understanding.
  • Letter of intent.
  • Term sheet.

They set out the key terms of the deal and are generally not legally binding. However, legal obligations can be created inadvertently and a strong "moral commitment" can be created that could weaken the buyer's negotiating position later on. The buyer will normally prepare this document. A buyer should always take legal advice before signing this document.

Exclusivity agreement

An exclusivity agreement (also known as a lock-out or no-shop agreement) gives the buyer a period of exclusivity in which to negotiate the transaction by preventing the seller from actively seeking or negotiating with other prospective buyers during the specified period. An exclusivity commitment can be dealt with in a separate agreement or as part of the heads of terms for the transaction.

Due diligence

The purpose of due diligence is to investigate the assets and liabilities of the target business. A buyer must take legal advice to ensure it gets the legal protections that it requires. If the buyer becomes aware of any significant problems in the due diligence process, it can:

  • Abort the deal.
  • Negotiate a price reduction.
  • Seek specific protections in the acquisition agreement.

Acquisition agreement

The acquisition agreement sets out the agreed terms governing the transaction and the mechanics of the deal (for example, the parties involved, the amount to be paid, the timing of the completion  and any consents or approvals required before completion). It will typically contain a number of provisions designed to protect the buyer, including:

  • Warranties. These are contractual promises given by the seller about different aspects of the target business (for example, that it owns all the assets and there are no disputes with third parties). If they are untrue, the buyer can sue for damages.
  • Indemnities. These require the seller to compensate the buyer (on a pound for pound basis) for specific liabilities if they arise (for example, potential tax or environmental liabilities).
  • Restrictive covenants. These can prevent the seller from competing with the target business or poaching key customers or employees for a period following completion. They will only be enforceable if they are reasonable in scope, duration and geography.

Disclosure letter

The disclosure letter is an important document that must be read in conjunction with the warranties in the acquisition agreement. A buyer cannot make a warranty claim for anything disclosed in this letter, although it may want to negotiate alternative protection for disclosed issues (such as a price reduction or an indemnity to cover the issue). If the buyer knew about a problem before signing the acquisition agreement, it may be unable to make a warranty claim for that issue even if it is not disclosed in the disclosure letter.

Seller limitations on claims

The seller will try and limit the claims that can be made under warranties and indemnities (for example, by limiting the time within which the claim can be brought and the amount that can be claimed).

Signing and completion

Signing of the acquisition agreement and completion of the transaction are often simultaneous, but a gap between them may be necessary if there are completion conditions to be fulfilled. For example:

  • Informing and consulting with any transferring employees.
  • Getting approval from the competition authorities.
  • Obtaining shareholder consent to the transaction.

If there is an interval between signing and completion, additional issues will need to be addressed in the acquisition agreement, including:

  • How the target business will be operated between signing and completion.
  • The period for satisfying the completion conditions, each party's responsibility for ensuring the conditions are met and what will happen if any of the conditions are not fulfilled.
  • Who bears the risk of any breach of the seller's warranties or other adverse event that occurs in relation to the target business in the interval between signing and completion. 

After the acquisition

  • Prepare a detailed integration plan for the acquired business after completion. Poor integration planning is often cited as the most common reason for acquisitions to fail.
  • Carry out the post-completion filings with Companies Registration Office, update the company books (if necessary) and pay any stamp duty due.
  • A buyer should take legal advice immediately if it thinks it has a possible claim for compensation from the seller. The acquisition agreement will invariably include strict time limits for bringing warranty claims which are often drafted to expire once the buyer has completed its first audit of the target business (although the time limit will usually be longer for tax claims).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions