The Legal Documents You Need in an Acquisition – And the Traps Hidden Inside Them

By Lora Witt

Acquisitions are full of ceremony: the meetings, the diligence, the spreadsheets, the lawyers circling back “just one more time”. But beneath the noise sits a quieter truth. Deals succeed or fail not because of the headline price, but because of the paperwork beneath it. Anyone can agree a number. Fewer can navigate the legal documents that turn intention into binding obligation. And even fewer know where the traps hide.

Whether you’re buying or selling, understanding the core legal documents in an acquisition—and the subtle dangers within them—is one of the most valuable skills you can develop. You don’t need to become a lawyer. You do need to become literate. A founder who understands the documents is a founder who protects their future.

So let me take you through the suite of documents typically involved in a UK SME acquisition, why they exist, what they really do, and the issues that cause deals to fall apart or go sour post-completion. Consider this a calm, unvarnished guide from someone who has watched more than one acquisition wobble simply because a party didn’t know which clause was quietly rewriting their destiny.

Heads of Terms

The Heads of Terms (HoTs) should be simple. They rarely are. They’re often drafted in a rush, usually in a spirit of goodwill, and almost always without enough attention to the downstream consequences. Although HoTs are generally non-binding, they set psychological anchors and create expectations that can be hard to unwind later.

The biggest traps in HoTs? Exclusivity that is far too generous; confidentiality that is too vague; and pricing language that looks innocent but locks you into a structure you don’t yet understand. You should never allow any performance-linked element (earn-out, deferred consideration) to be vaguely defined in a document that will shape the negotiations to follow. Vague terms favour the party with more experience, more leverage or more patience.

Another risk is signing HoTs before understanding tax implications. A price that looks fine in principle may be punishing after corporation tax, entrepreneurs’ relief issues, or deferred payments treated as employment income.

Treat HoTs like scaffolding: light, functional, but firm enough to prevent structural surprises later.

Confidentiality Agreement (NDA)

NDAs are the forgotten heroes of M&A. They stop confidential information being misused and allow you to conduct diligence without fear that your trade secrets will become community property. But a poorly drafted NDA can create blind spots.

Look out for clauses that allow the buyer to use your information for “evaluation and related business purposes”. That wording is wide enough to sail a container ship through. Also watch for carve-outs that permit disclosure to “affiliates” without defining who those affiliates are.

Another common trap: allowing the buyer to speak to staff or customers before exclusivity is granted or proper protocols are in place. Early contact is one of the fastest ways to destabilise a business.

Disclosure Letter

The Disclosure Letter is where the seller tells the buyer about the skeletons. Every gap between the warranties and reality is supposed to be disclosed here. If it’s not disclosed, it becomes fertile ground for future claims.

The real trap? Sellers underestimate how crucial and time-consuming this document is. A rushed Disclosure Letter is a liability. Over-disclosure is irritating but safe. Under-disclosure is dangerous.

If you're selling, invest the time. A well-crafted disclosure bundle can be the difference between a smooth earn-out and years of post-completion disputes. If you're buying, scrutinise disclosures for patterns: repeated problems in finance, recurring HR issues, or operational surprises that hint at underlying instability.

Share Purchase Agreement (SPA)

The SPA is the heavy-duty document that actually transfers ownership. It is the novel of the transaction. Everything else is supporting commentary.

Within the SPA sit the clauses that can make or break you: warranties, indemnities, price adjustments, covenants and completion mechanics. Many founders flick to the headline price and assume the rest is legal noise. It is not. The SPA is where the sharp edges hide.

Warranties are broad statements about the state of the company. If they turn out to be untrue, the buyer can bring a claim. Sellers often underestimate how sweeping these statements are: compliance with law, accuracy of accounts, absence of disputes, quality of assets, tax liabilities, environmental risk, and more. The trap is not the warranty itself but the assumption that “it won’t matter”. It always matters. Warranties tell you who holds the risk.

Indemnities are even more serious. They create pound-for-pound liability for specific identified risks. These are the polished knives of the SPA. The trap is allowing multiple indemnities that are open-ended, uncapped or not time-limited. If you are a seller, you should resist indemnities that extend into unknown future territory. If you are a buyer, they are your shield against inherited problems.

Price adjustment mechanisms, such as completion accounts and locked-box clauses, cause more emotional stress than almost any other part of an SPA. The trap here is misunderstanding which party bears the risk of leakage, debt levels, working capital fluctuations or accounting judgements. Completion accounts shift the risk to the seller until the completion balance sheet is finalised. A locked-box mechanism fixes the price based on an earlier balance sheet date—great for sellers if well drafted, terrible if leakage has not been controlled.

Restrictive covenants protect the buyer from the seller immediately opening a competing business. The trap is for sellers who agree to overly broad restrictions (too long, too wide, too vague), and for buyers who fail to define what “competing” actually means.

Disclosure Schedules

These sit behind the SPA and detail exceptions to warranties. They look dull. They are not. This is where the business bares its throat. Sellers must be thorough. Buyers must be sceptical. Inconsistencies between disclosure schedules and financial statements are red flags.

One trap: relying on verbal disclosures. If it isn't written here, it isn’t disclosed.

Employment Agreements and Director Service Agreements

After a sale, the buyer needs assurance that key managers will stay, or that founders staying on for an earn-out won’t drift into semi-retirement. Properly drafted employment or service agreements align incentives and expectations.

Traps include overly ambitious performance targets, mechanisms that allow unilateral changes in role, or restrictive covenants that accidentally forbid the individual from ever working in their own sector again. And for buyers, the trap is failing to require clear deliverables from founders who transition into advisory or leadership roles post-sale.

Shareholder Agreements

If the acquisition involves minority equity retained by founders—or the buyer is issuing shares as part of the consideration—a shareholder agreement is essential. A weak one is worse than none. A strong one protects the governance structure, voting rights, transfer mechanics, information rights and dispute resolution routes.

Traps include drag and tag provisions that work against you, voting thresholds that can paralyse governance, and veto rights that make ordinary operational decisions impossible.

Asset Purchase Agreement (APA)

If the transaction is an asset sale rather than a share sale, the APA defines which assets and liabilities transfer. The trap is assuming asset sales are simpler. They are not. Every asset must be listed. Every contract must be assigned. Every licence must be transferred. Forgetting one can break the business.

Beware of TUPE. Staff transfer automatically, with their rights intact, whether or not the buyer intended it.

Tax Deed

Every buyer wants a tax deed. Every seller resents it. It protects the buyer from tax liabilities relating to periods before completion. Sellers often don’t realise how long-tail tax exposures can be—or how a poorly structured tax deed can become an indefinite shadow.

Traps include unlimited liability, vague definitions of “tax”, and timelines that stretch unnecessarily far into the future. Sellers should push for caps and clear boundaries.

Due Diligence Reports

Though technically not one document, diligence reports form part of the legal ecosystem. The trap is believing they are merely informational. They guide negotiations. They shape warranties. They influence price. And they determine where indemnities appear.

For buyers: diligence that is too light creates blind spots. For sellers: incomplete or sloppy documentation invites suspicion and price reduction.

Completion Board Minutes and Resolutions

These documents implement the transaction: appointing directors, approving the deal, issuing shares, transferring ownership. They are the ceremonial paperwork of closure. The trap is not appreciating how precise the drafting must be. One wrongly worded resolution can slow completion dramatically.

Loan Notes, Earn-Out Agreements and Deferred Consideration Documents

These are the quiet assassins of deal happiness. Earn-outs in particular are notorious for brewing disputes. The trap lies in ambiguous KPIs, unclear operational boundaries, or definitions of profit that allow creative accounting to play puppet-master.

If you're a seller relying on an earn-out, insist on visibility into the performance metrics and protection against post-sale manoeuvres that depress profitability.

If you're a buyer, ensure the earn-out rewards genuine performance—not gaming.

Intellectual Property Assignments

Many SMEs do not actually own the IP they think they own. If contractors built your website, software, brand assets or proprietary tools, you must secure assignment. The trap is assuming ownership without evidence. Buyers should demand IP assignment deeds pre-completion.

Share Certificates, Registers and Corporate Books

You might think these are administrative details. They are not. If the target company’s statutory books are in disarray—which is more common than you’d think—the deal lawyers will spend days fixing them. The trap for sellers is waiting too late. The trap for buyers is assuming Companies House records are always accurate.

Regulatory Approvals

Some deals require FCA approval, landlord consent, client novation or sector-specific permissions. The trap is underestimating timelines. A single delayed approval can derail completion.

Data Protection Documents

Buyers should check GDPR compliance, privacy notices, retention policies and security standards. The trap is dismissing data protection as “IT’s problem”. GDPR fines are not theoretical.

Environmental and Property Reports

If the business owns or occupies land, these reports matter. Environmental liabilities can be severe. Property title issues, restrictive covenants or forgotten dilapidation clauses can change the economics of a deal. The trap is assuming commercial property is routine. It rarely is.

Common Traps Across All Documents

Missing deadlinesUnclear definitionsAssuming goodwill replaces draftingSigning before understandingLetting advisers negotiate business pointsNot aligning tax, legal and commercial outcomesFailing to prepare early enoughBelieving the other party will behave “reasonably” without a clause forcing them to

Good acquisitions are not the product of perfect harmony. They are the product of precise paperwork that anticipates disharmony.

Final Thoughts

You don’t need to memorise every clause in every document. But you do need to understand the terrain: where risk sits, who carries it, and how it’s transferred. Effective acquisition documents don’t eliminate uncertainty—they organise it. They allocate it to the party best able to bear it. And they prevent later disputes from eating the value you thought you’d gained.

The goal is not more paperwork. It is better paperwork. Documents that protect you, clarify expectations and create a dealing environment built on clarity rather than chaos.

How Lexis Capital Group Can Help

At Lexis Capital Group, we guide buyers and sellers through the entire acquisition process, ensuring the legal documentation supports—not sabotages—the deal. We work alongside specialist lawyers, accountants and tax advisers to structure, negotiate and oversee every document: Heads of Terms, SPAs, APAs, disclosure bundles, shareholder agreements, earn-outs and more. Whether you’re preparing for sale, evaluating an acquisition or navigating diligence, we help protect value, reduce risk and create clean, investor-ready transactions. A deal is only as strong as its documents, and we ensure yours are built to last.