When a business owner gets to the point of signing the sale of their company, it's natural to have put all their energy into negotiating the price, the earn-out, and the payment schedule. That makes sense — those are the visible numbers of the deal.
But the SPA, the share purchase agreement, contains a dozen or so technical clauses that many sellers sign without negotiating them with the same care. And it's precisely those clauses that determine something just as important: how much risk is still yours after you get paid.
An overly broad MAC definition can give the buyer a way to try to walk away from the deal after signing. A poorly negotiated materiality scrape can turn small claims into a minefield. Vague wording on tax covenants or knowledge qualifiers can leave you exposed for years.
In this article, we review the 8 most sensitive SPA clauses from the seller's perspective, with the typical wording that protects you, the wording that exposes you, and the negotiation logic behind each one.
The SPA defines how much risk is still yours after you get paid
The SPA is the binding contract that formalizes the sale of your company's shares. Once signed, both parties are legally bound to comply with all of its terms. To understand the full document and its main sections, we've published a guide on what an SPA is and how it's structured.
What few business owners anticipate is that the SPA contains a group of technical clauses — usually drafted as a block by the buyer's lawyer — that determine the seller's residual risk for months or years after the deal closes. They govern:
- Under what circumstances the buyer can walk away from the deal between signing and closing
- What claims the buyer can bring after closing, and for how much
- What tax or legal liabilities remain yours
- What counts as "your knowledge" of the company's actual condition
None of them require changing the price. All of them can change how much of the price you end up keeping.
The 8 sensitive clauses, one by one
For each clause, there's typical wording that protects you and wording that exposes you — both are common in the market, and which one ends up in your SPA depends almost entirely on how well you negotiate them in the draft. Select each clause in the panel and compare the protective and risky wording side by side:
01. Material adverse change (MAC)
A clause that allows the buyer to withdraw from or renegotiate the deal if certain material adverse events occur between signing and closing.
Risk for the seller
A broad definition is an open door for the buyer to renegotiate the price or abandon the deal on almost any pretext between signing and closing.
Protective wording
A MAC shall consist exclusively of a decline in revenue greater than X%, the loss of customer A or B, or a final judgment for an amount greater than Y. The effects of the general economy, the industry, or the buyer's actions shall not constitute a MAC.
Risky wording
A MAC is any fact, circumstance, or event that has or could reasonably have a material adverse effect on the business, operations, prospects, or financial condition of the Company.
How to negotiate it
A closed list of specific events, measurable quantitative thresholds, and an express exclusion of macroeconomic or industry-wide causes.
02. Materiality scrape
A clause that removes the materiality thresholds built into the representations and warranties for the purpose of quantifying indemnifiable losses.
Risk for the seller
It allows the buyer to bring claims over minor matters that the natural language of the representations had filtered out of scope. It turns small claims into a minefield.
Protective wording
The seller's representations and warranties shall retain their materiality and knowledge qualifiers for all purposes, including the calculation of indemnifiable losses.
Risky wording
For the purpose of calculating indemnifiable losses, all materiality, substantiality, or knowledge qualifiers included in the representations and warranties shall be disregarded.
How to negotiate it
If the buyer insists, mitigate it by requiring clear caps, meaningful baskets, and a minimum amount per individual claim.
03. Reasonable efforts / best efforts
The seller's obligation to use reasonable or best efforts to complete specific tasks: authorizations, conditions precedent, and post-closing transition support.
Risk for the seller
Undefined “best efforts” can be interpreted as an obligation to incur extraordinary costs or to litigate against third parties, which is more than you thought you were signing up for.
Protective wording
The seller shall use commercially reasonable efforts, in line with customary industry practice, with no obligation to incur material additional costs or to litigate against third parties.
Risky wording
The seller shall use its best efforts to [...]. With no further definition and no exclusion of extraordinary costs or actions.
How to negotiate it
Define what counts as “reasonable” with concrete examples and explicitly exclude any obligation to incur disproportionate costs or to litigate.
04. Anti-sandbagging / sandbagging
A clause that determines whether the buyer can bring claims for breaches of representations it already knew about before closing.
Risk for the seller
Without an anti-sandbagging clause, the buyer can use information uncovered in due diligence to bring claims after closing, even if it knew about it at signing.
Protective wording — anti-sandbagging
The buyer may not bring any claim for breach of representations or warranties regarding facts it knew or should reasonably have known at closing, in particular those disclosed during due diligence.
Risky wording — pro-sandbagging
The buyer's prior knowledge shall in no way limit its right to bring claims for breaches of the seller's representations and warranties.
How to negotiate it
Include an express anti-sandbagging clause that specifically covers the materials provided during due diligence and the seller's disclosures in the schedules.
05. Ordinary course of business
The seller's obligation to run the company in the ordinary course of business between signing and closing, without making decisions that change the profile of what the buyer is acquiring.
Risk for the seller
If it isn't well defined, the buyer can challenge normal day-to-day operating decisions and block closing or bring a claim for breach.
Protective wording
Operation in the ordinary course consistent with practice over the last 12–24 months. The following shall be expressly permitted: routine hiring, routine renegotiation of supplier contracts, and business decisions below [threshold].
Risky wording
The seller shall operate the Company in the ordinary course of business until closing. With no further definition, list of exceptions, or thresholds.
How to negotiate it
Combine a positive list of permitted actions, a negative list of actions that require the buyer's consent, and clear financial thresholds above which consent applies.
06. Tax covenants
A clause that defines the seller's tax obligations and indemnities for the periods before closing.
Risk for the seller
Broad wording can assign the seller unlimited liability for every historical tax contingency, including time-barred tax years or taxes that don't apply.
Protective wording
The seller is liable for tax contingencies relating to the 4 tax years prior to closing that are not time-barred, with a cap of X% of the price and a survival period of 24 months from closing.
Risky wording
The seller shall indemnify the buyer, with no limit in amount or time, for all of the Company's historical tax contingencies.
How to negotiate it
Limit the period —non-time-barred tax years—, the amount —cap—, the scope —types of taxes covered— and the survival period from closing.
07. Knowledge qualifier
A clause that defines what counts as “the seller's knowledge” for the purposes of the representations and warranties given under the SPA.
Risk for the seller
Some wording includes “what the seller should have known” —constructive knowledge—, extending liability to facts that weren't actually known at signing.
Protective wording
“The seller's knowledge” means the actual knowledge —actual knowledge— of the following individuals as of the date of the SPA: the Company's CEO and CFO. Any form of constructive knowledge is expressly excluded.
Risky wording
“The seller's knowledge” means actual knowledge or the knowledge the seller should reasonably have had in the normal course of business —constructive knowledge
How to negotiate it
Limit it to the actual knowledge of specifically named individuals and expressly exclude constructive knowledge, that is, what the seller “should have known.”
08. Entire agreement clause
A clause stating that the SPA, its schedules, and the defined documents contain the entire agreement between the parties, superseding any prior negotiation, communication, or promise.
Risk for the seller
Any verbal promise, side letter that isn't included, or undocumented expectation has no effect. The risk isn't in how it's drafted, but in what the seller forgets to document.
How to protect yourself
Before signing, everything important —commercial promises, founder commissions, transition arrangements, side letters— must appear expressly in the SPA, in its schedules, or in a referenced document.
Common mistake
Relying on verbal promises the buyer made during the negotiation —a job for your son, a transition fee, a flexible earn-out— and signing the SPA without having documented them in writing.
How to approach it
Thoroughly review all side agreements before signing. Anything that isn't in writing in the SPA or an annex doesn't legally exist after closing.
How to approach the SPA negotiation as a seller
Beyond each specific clause, there's a general logic that an experienced seller applies when negotiating the SPA:
- Ask for you or your advisor to prepare the first draft, not the buyer. It's common for the buyer to propose the first draft, but whoever writes the first version anchors the document. Asking for the draft isn't aggressive: it's strategic.
- Technical clauses are negotiated as a package, not in isolation. MAC, materiality scrape, knowledge qualifier, sandbagging, and tax covenants are all part of the same risk package. Conceding them one at a time means losing ground in the negotiation.
- Caps, baskets, and time limits are your three defensive levers. Cap (the maximum claimable amount), basket (the minimum threshold for bringing a claim), and survival periods (how long the warranties last). If a clause is aggressive, mitigate it by adjusting these three levers.
- Document everything in schedules. If something important to you must remain true after the sale — a verbal agreement, a commission, a side letter — it must appear in writing in the SPA or its schedules. The entire agreement clause overrides everything else.
- Consider W&I insurance in deals where the buyer pushes for broad warranties. It covers breaches of the warranties and can replace or reduce the escrow.
For the mechanics of the post-closing cash guarantee, see what escrow is in M&A. And for the earlier stage where part of the risk that the SPA later documents originates, see what due diligence is.
