Disclosure process in a share purchase transaction
Disclosure process in a share purchase transaction

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Disclosure process in a share purchase transaction
  • Drafting the disclosure letter
  • Negotiating the disclosure letter

This Practice Note is part of the Share purchase transaction toolkit.

The disclosure process involves the preparation of the disclosure letter by the seller, which will be finalised and signed at exchange.

The disclosure letter serves a separate purpose to due diligence, even though both involve providing information concerning the target to the buyer. It allows the seller to qualify the warranties set out in the warranties schedule of the share purchase agreement and thereby limit its potential liability under them. If, following a buyer's claim for breach of warranty, a matter can be shown to have been disclosed to the buyer (meeting the standard of disclosure described in the share purchase agreement), the buyer's warranty claim will not succeed.

The disclosure letter contains:

  1. general disclosures: information and documents of a general nature (such as the searches of public registers) which are deemed disclosed to the buyer (even though the general disclosures is generally a short list, the breadth of matters covered by the general disclosures often requires considerable negotiation)

  2. specific disclosures: a list of specific matters concerning the target, which are referenced to specific warranties in the share purchase agreement (it will be for the seller to prepare this long, detailed list and then negotiate it with the buyer, alongside negotiation of the warranties)

Disclosure and due diligence are interlinked processes and information gained