The sale and purchase agreement when selling a business in Singapore

Where the SPA fits in a sale

A sale usually moves through three documents:

1. An NDA before the buyer sees confidential information.
2. A letter of intent or heads of terms setting out the price, structure and main terms, mostly not binding.
3. The SPA, negotiated alongside due diligence and signed when both sides are ready to commit.

The buyer’s lawyer usually prepares the first draft, especially in a share sale, and your lawyer reviews and negotiates it. Signing and completion can happen on the same day, or completion can follow later once conditions are met. Our guide to how to sell a business in Singapore sets out the full timeline.

The letter of intent sets the frame for the SPA, so it pays to get it right.

What is being sold, and the price

The SPA defines exactly what is sold: the shares in a share sale, or a list of assets, contracts and goodwill in an asset sale. See our guide to share sales and asset sales.

The price clause sets out how you are paid:

• Completion payment: the cash paid on the day.
• Deferred consideration: fixed amounts paid later, ideally secured.
• Earn-out: further payments that depend on how the business performs after the sale.
• Retention or escrow: part of the price held back for a period to cover warranty claims.

Our guide to deal structures explains each of these and how to compare offers on the cash you actually receive.

Completion accounts or a locked box

Most prices are agreed on a cash-free, debt-free basis with a normal level of working capital. The SPA then sets how the final figure is fixed:

• Completion accounts. Accounts are drawn up at completion, and the price is adjusted up or down for the actual debt, cash and working capital on that day. This is accurate but can lead to disputes after the sale.
• Locked box. The price is fixed by reference to an earlier balance sheet, and you promise not to take value out of the business between that date and completion. This gives you certainty but needs reliable accounts.

Our guide to working capital and net debt explains the adjustment in detail.

Conditions before completion

If completion does not happen on signing, the SPA lists the conditions that must be met first. Common ones are:

• The landlord’s consent to assign or change control under the lease
• Regulatory approvals or new licences, especially in healthcare, food and other regulated sectors
• Consents from key customers or suppliers whose contracts have change-of-control clauses
• The buyer’s financing

Agree a long-stop date, after which either side can walk away if the conditions are not met, and limit what you must do to meet them.

Warranties, the disclosure letter and indemnities

Warranties are statements you make about the business: that the accounts are accurate, the tax is paid, there are no undisclosed disputes, the company owns its assets and complies with the law. If a warranty is untrue and the buyer loses out, the buyer can claim against you.

The disclosure letter is how you protect yourself. In it you list anything that makes a warranty untrue, such as a pending claim, a licence condition or an unusual contract. Matters fairly disclosed generally cannot be claimed for later. Thorough, specific disclosure is one of the best protections a seller has.

Indemnities are promises to reimburse the buyer, dollar for dollar, for specific known risks, such as a tax issue or a dispute found in due diligence. They are harder to defend than warranties, so keep them to specific, identified matters.

Limits on claims after completion

A well-negotiated SPA limits your exposure once the money is paid. The usual limits are:

• A cap on total liability. For general warranties it is often a share of the price; title to the shares is usually covered up to the full price.
• A minimum claim size, so trivial claims cannot be brought, and often a threshold that total claims must exceed first.
• Time limits for bringing claims, often 12 to 24 months for general warranties and longer for tax.
• No double recovery, and no claims for matters the buyer knew about or that were fairly disclosed.

Warranty and indemnity insurance, which shifts some of this risk to an insurer, is increasingly used in larger deals, but is less common in owner-operated SME sales.

Restrictive covenants and your role after the sale

Buyers will ask you not to compete with the business, solicit its staff or customers, or use its name for a period after the sale. Singapore courts are generally more willing to enforce these in the sale of a business than in employment, but they must still be reasonable in length, area and scope. Push back on anything wider than the business you are actually selling.

If you are staying on to help with the handover, agree your role, hours, pay and duration in a separate service or consultancy agreement, and make sure an earn-out does not depend on things you will no longer control.

Common traps for sellers

• Signing a letter of intent that already commits you to terms your lawyer would not accept.
• Agreeing to warranties that go beyond what you actually know, without a disclosure letter.
• Leaving the cap, threshold and time limits until the last week, when you have least leverage.
• An earn-out based on profit the buyer can influence through its own costs or accounting.
• Deferred payments with no security if the buyer cannot pay.
• A non-compete wide enough to stop you working in your industry at all.

Most of these are easier to avoid if your lawyer and adviser shape the letter of intent, not just the SPA.