Heads of Terms (Share Purchase)

What is a Heads of Terms (Share Purchase) and when should you use it?

Heads of Terms (Share Purchase) are used when a buyer and seller have agreed the principal terms of a share purchase/sale agreement and wish to put them in writing to avoid future misunderstandings and identify any pitfalls at an early stage of negotiations.

This will avoid wasting time and costs.

Most heads of terms will not be legally binding, but it is quite common for some terms, such as confidentiality, to be an exception.

They are the first step on the path to a share purchase.

These Heads of Terms (Share Purchase) are a fairly standard set of terms for a share purchase.

Heads of Terms can also be referred to as Heads of Agreement.

By design, this document is not comprehensive enough to cover all the necessary details involved in a binding formal agreement.

But its lack of detail is also its strength because it allows for broad consensus on the proposed terms.

It also shows the commitment by both parties and acts as a guideline to negotiating a formal agreement.

What else might you need?

Once you have agreed the principal terms of a share purchase agreement the next stage in the process should be the due diligence.

Due diligence is the process of investigation into the financial, tax and sometimes commercial affairs of a business being sold.

You will find our due diligence enquiries template useful for this.

Once you have completed your due diligence the next stage is the drafting of a formal share purchase agreement.

You can find our simple share purchase agreement here 

You may be required to share confidential information with the potential buyer.

We recommend that before you share any confidential information about your business you get a confidentiality agreement to protect it.

Use our confidentiality agreement to get the protection you need.

You may also need what is a called a disclosure letter.

This is a letter issued to the Buyer prior to completion of the sale and is designed to protect the Seller from future claims by the Buyer.

You can find our disclosure letter here