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I've covered a fair amount of corporate law by this point in my legal journey (at least I can now safely say I know the difference between corporate and commercial law) but if there's one thing I know about law, it's that the more you learn, the more there is to find out.

In the spirit of that ethos, I recently realised that while I might understand the vague contours of a share purchase agreement (SPA), I couldn’t tell you how this foundational corporate law document fits into the wider landscape of corporate law. Nor could I tell you anything about its lesser-known sister, the asset purchase agreement (APA).

So, in this article, we'll examine share purchases and asset purchases (and their respective documents) in greater detail and learn more about the role of a corporate trainee working under these deals.

For more information on areas of legal specialism, check out our Practice Area Profiles.

What’s a deal, really?

A business deal is simply a formal or informal agreement between two or more parties to exchange goods, services, money or resources for mutual benefit. Everything that comes next – SPAs, APAs, due diligence and warranties – exists to make that exchange happen safely, fairly and on mutual terms.

What’s an SPA?

An SPA is one of the cornerstone contracts in corporate law. It’s used when a buyer wants to acquire a company by purchasing its shares directly from the company's existing shareholders, rather than buying the underlying business piece by piece. Because the buyer is acquiring the shares, they take on the entire corporate entity. The company gets to keep its name, contracts and trading history.

The appeal of a share sale is its structural simplicity: the buyer gets to acquire the target company as it is, with all its assets and liabilities – the good, the bad and the unknown.

What’s an APA?

An APA, by contrast, is used when a buyer wants to purchase specific assets from a company (such as IP or equipment) rather than the company itself.

When they purchase specific assets, the buyer also takes on any liabilities associated with those assets that the parties have specifically agreed to transfer. The advantage of this compared to sale purchases is that the buyer has greater flexibility to choose which assets (and associated risks and liabilities) they want and which they don't.

Warranties and representations

Warranties are essentially promises about the condition of the business being sold and they operate differently across the two types of agreements.

Share sales have no implied representations or warranties. This means that if something isn't explicitly written into the agreement, it doesn't exist as a matter of protection for the buyer (which explains why SPA warranty schedules tend to be very extensive).

Meanwhile, in asset sales, the seller typically responds to standard enquiries about the asset alongside any additional enquiries the buyer raises during due diligence. But the principle of caveat emptor applies equally to both share and asset purchases. This means that, in either sale, the buyer can’t simply rely on the seller's disclosures. Instead, they must make their own enquiries to catch anything the seller hasn't flagged (or won't flag).

Who inherits the liabilities?

Liabilities are the legal obligations and debts attached to a business.

In share sales, the buyer inherits all risks (past, present, unknown – you name it). This is why share sales typically carry higher risks for buyers and demand deeper due diligence. 

In an asset sale, the buyer gets to choose which assets to acquire and to leave certain liabilities behind. This makes the transfer process simpler and enables the buyer to sidestep old legal or financial claims, though it also has the disadvantage of creating an extra tax burden for the seller.

What can a trainee do?

Of course, the role of a corporate trainee varies firm by firm depending on how much responsibility you're given, how big the team is and the nature of the client or deal you're working on.

Generally, however, a trainee involved in asset purchases or sale purchases would get to experience at least a few of the below tasks:

• Due diligence: This entails researching the target and flagging issues that may need to feed into the agreement's terms.
• Drafting ancillary documents: Occasionally, trainees are given scope to draft disclosure letters, board minutes, checklists, agendas and powers of attorney.
• Populating contracts: A common task involves taking a template document (such as a firm's precedent SPA) and filling it in with the relevant details and figures provided by the client.
• Attending client meetings: Trainees can also sit in on discussions where deal details are worked through.

Whether you're preparing for a career in corporate law or just exploring your options, I hope this article has clarified some of the main features of the two key types of deals. In practice, of course, what's important isn't just memorising the difference between the two types of deals but understanding how to apply it to your client based on their commercial, financial and strategic needs.