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
Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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