Buying and Selling Shares

This article deals with the sale and purchase of shares in a company. To read about buying and selling assets, click here.

The early stages

The buyer and seller of a company will usually agree between themselves the basic terms, such as what is being sold, the price and any special payment terms. At this stage, very often no professional assistance is given, although sometimes a broker or agent will be involved, who might assist in the negotiations.

Due diligence

Due diligence is the name given to the exercise carried out by the buyer to find out as much as he can about the company he is buying. The buyer will sometimes be assisted by accountants and lawyers at this stage.

Information that comes to light at the due diligence stage can affect the basic terms of the deal. For example, a buyer might find out information that changes the amount he is willing to pay for the company (or indeed induce him to pull out of the deal completely). It is therefore important that the due diligence process is carefully and thoroughly managed.

The contract stage

Once the basic terms have been agreed, a contract will be drafted, usually by the buyer’s solicitor. The contract will usually be complex and there are and will conclusion the following:

  • the price to be paid for the shares;
  • the mechanism for payment, including whether it is to be by instalments or if there are any targets or variables which will affect the price to be paid;
  • any restrictions on what the seller can do after the sale of the shares is completed;
  • any limitations on the seller’s liabilities to the buyer;
  • warranties.


When a company is sold, the assets and liabilities of the company go with it. The buyer is thus acquiring the company “warts and all”. For this reason, the sale contract will contain warranties given by the seller. The warranties are a detailed set of statements made by the seller as to the state of the company and its affairs.  The warranties will usually include comprehensive provisions relating to the company’s assets and its business, employees, tax position and whether there are any disputes or litigation. It is therefore essential that the seller check the warranties he is being asked to give and ensure that they are true and accurate. 

Limitations on the seller’s liability

Because the seller can be liable to the buyer under the terms of the warranties, and may therefore find the purchase price reduced after completion, the contract will contain limitations on the seller’s liability.  There will usually be a minimum size of claim that the buyer is entitled to bring, so that the seller does not have to be bothered with numerous small claims. In addition, there will be an overall limit of the seller’s liability, which will usually be the purchase price (so that the best the buyer can ever get is his money back) or a fraction or multiple of the purchase price.  Finally, the contract will usually contain a time limit for claims, so the buyer may only bring warranty claims for a limited time after completion of the purchase.

Post-completion restrictions

The contract often contains restrictions on the seller’s post-completion actions. The most common of these are that the seller will not:

  • be involved in a competing business for a fixed period;
  • poach the employees of the business;
  • poach the customers of the business.

Stamp duty

A sale of shares attracts stamp duty. This is payable at 0.5% of the purchase price and must be paid within a month of completion (generally, even if the purchase price payable later). Share transfers worth less than £1,000 are exempt from stamp duty.


The tax treatment for both seller and buyer on a sale of shares can be complicated and may have unexpected results. It is therefore important that both sides seek tax advice from an accountant or tax adviser.

How can we help?

Wheelers’ company and commercial team are very experienced in advising on all stages of shares sales and purchases.  We can also advise on all the legal issues that arise in running a business, such as property and employment matters and all kinds of commercial agreements. If you have any questions or are looking for information on share sales or any other business law matter, please contact Catherine Drew