SPA and risk allocation

M&A and corporate finance glossary: 23 entries in English and Polish

M&A and corporate finance glossary: SPA and risk allocation

The entries in this section describe the stock purchase agreement and how the parties allocate risk in it: representations and warranties, special indemnities, limitations of the seller’s liability, the claims procedure, conditions precedent, and interim covenants. They also explain the non-compete, W&I insurance, and the choice of governing law and arbitration.

Prepared by the Capital One Advisers team. Entries last reviewed: November 12, 2026.

Entries from A to Z (23):

Change of control clause

Polish: klauzula zmiany kontroli

A change of control clause is a provision in a contract between the company and a counterparty, such as a loan, lease, license, or supply agreement, that requires the counterparty’s consent to a direct or indirect change of control, as defined in the contract, or gives the counterparty the right to terminate, demand early repayment, or change the terms if such a change occurs. The buyer looks for such clauses in legal due diligence, and counterparties’ consents to the change of control often become conditions precedent or obligations the seller must meet before closing. In loan agreements, a change of control may be an event of default, a mandatory prepayment event, or a matter requiring the lender’s consent.

Claims period

Polish: termin na zgłaszanie roszczeń

The claims period is the period after closing, set in the sale agreement, during which the buyer can notify the seller of claims for breach of the representations and warranties. For general warranties, it is usually set so that the buyer can review at least one full set of the company’s financial statements prepared after closing. The period is longer for tax and fundamental warranties. For tax warranties, it often runs until the relevant tax liabilities become time-barred. The agreement also specifies the form and supporting details required for a claim notice. The contractual notice period is distinct from the statutory limitation period, which cannot be shortened or extended by any legal act (Article 119 of the Polish Civil Code).

Claims procedure

Polish: procedura zgłaszania roszczeń

The claims procedure is the set of provisions in the sale agreement that govern how the buyer pursues claims under the representations and warranties and the special indemnities: the deadline and form of the claim notice, the information and documents to be attached, and the time the seller has to respond. It separately governs third-party claims against the company, for example from counterparties or tax authorities. The buyer must then usually notify the seller promptly, let it take part in the defense and, where agreed and permitted by the rules on representation, conduct it, and obtain its consent to any settlement. The agreement also states whether a breach of the procedure limits or excludes the claim.

Conditions precedent, CPs

Polish: warunki zawieszające

Conditions precedent (CPs) are events or requirements set in a sale agreement that must be met before the parties are obligated to close, including transferring the shares and paying the price. Some are conditions within the meaning of Article 89 of the Polish Civil Code, that is, future and uncertain events on which a legal effect depends, and others concern the parties’ performance. Typical conditions include merger clearance from the President of UOKiK where the deal must be notified, consents from banks and counterparties whose contracts contain change of control clauses, approvals by the company’s corporate bodies, the absence of an objection under the Polish Act on the Control of Certain Investments, and the securing of financing. The agreement specifies which party is responsible for satisfying each condition, whether and by whom it may be waived, and the date by which the conditions must be met. A clearance from the President of UOKiK required by law cannot be waived by the parties.

Contractual penalty

Polish: kara umowna

Under Polish law, a contractual penalty (kara umowna) is a sum stipulated in a contract that the debtor pays the creditor for non-performance or improper performance of a non-monetary obligation (Article 483 § 1 of the Polish Civil Code). It is due regardless of the amount of loss, and damages exceeding the penalty can be claimed only if the parties have so agreed (Article 484 § 1 of the Civil Code). The debtor can ask for the penalty to be reduced if it has performed a substantial part of the obligation or the penalty is grossly excessive (Article 484 § 2 of the Civil Code). In deal documents, it usually secures the non-compete, confidentiality, and the seller’s interim obligations.

De minimis threshold

Polish: próg de minimis

The de minimis threshold is the minimum amount of an individual claim for breach of the representations and warranties below which the buyer cannot bring it against the seller. Claims below this threshold usually do not count toward the basket either. The threshold protects the seller from numerous small claims that would cost more to pursue than they are worth.

Fundamental warranties

Polish: oświadczenia podstawowe

Fundamental warranties are the seller’s representations and warranties on the very basis of the deal: that it owns the shares being sold, that they are free from encumbrances and third-party rights, that it has the capacity and due authority to enter into the agreement, and that the company was validly formed and exists. If they prove untrue, the whole deal is undermined, so the sale agreement usually gives them a higher liability cap, often equal to the price, and a longer claims period, and does not apply the de minimis threshold or the basket to them. Buyers also usually refuse to let disclosures qualify these warranties.

Governing law and arbitration

Polish: prawo właściwe i arbitraż

Governing law is the law of the country to which the parties subject a contract and under which its validity, interpretation, and effects are assessed, and arbitration is the resolution of disputes by an arbitral tribunal chosen by the parties. The law applicable to contractual obligations under a stock purchase agreement is determined by the Rome I Regulation (Article 28(1) of the Polish Private International Law Act), but the acquisition and loss of shareholder status in a Polish company and the related rights and obligations are governed by Polish law as the law of the company (Article 17(3)(7) of that Act). Arbitration requires an arbitration agreement in writing, a requirement also met if the agreement is contained in letters or statements exchanged between the parties by means of distance communication that allow their content to be recorded (Articles 1161 § 1 and 1162 of the Polish Code of Civil Procedure), usually naming a permanent arbitration court and its rules.

Indemnification basket

Polish: próg łączny roszczeń

An indemnification basket is the amount that the buyer’s claims for breach of the representations and warranties must exceed in total before the seller becomes liable for them. With a tipping basket, once the threshold is exceeded the seller pays the full amount of the claims; with a deductible, it pays only the excess over the threshold. The basket is usually set as a percentage of the price.

Interim covenants

Polish: zobowiązania na okres przejściowy

Interim covenants are provisions of a sale agreement in which the seller undertakes that until closing the company will be run in the ordinary course and will not take certain actions without the buyer’s consent, such as paying a dividend, taking on a loan, selling assets, changing management pay, or entering into unusual contracts. They protect the value the buyer is paying for and, under a locked box mechanism, supplement the ban on leakage. If the deal requires merger clearance, the buyer’s consent rights must not give it control of the company before clearance is obtained.

Investment agreement

Polish: umowa inwestycyjna

An investment agreement is an agreement between an investor and the company, its existing shareholders, or both that sets the terms on which the investor enters the company, most often by subscribing for new shares for cash. It sets out the investment amount and the company’s valuation, the payment schedule, often in tranches tied to milestones, conditions precedent, representations and warranties by the founders and the company, usually undertakings to pass resolutions on the capital increase or share issue and on the amendment of the articles of association, and the terms of cooperation after the investment. It is often combined with a shareholders’ agreement, or both are set out in a single document.

Not to be confused with: stock purchase agreement, share purchase agreement, SPA.

Liability cap

Polish: limit odpowiedzialności

A liability cap is the maximum total amount the seller will pay the buyer for breaches of the representations and warranties, usually set as a percentage of the price. A higher cap, often equal to the full price, usually covers fundamental warranties, such as title to the shares and the seller’s authority, and separate caps may apply to tax matters and special indemnities. When W&I insurance is in place, the seller’s liability is sometimes limited to a small amount, with the insurer taking on the risk above it, subject to the policy’s coverage, exclusions, and limit.

More in the article “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

Limitations of the seller’s liability

Polish: ograniczenia odpowiedzialności sprzedającego

Limitations of the seller’s liability are provisions of a sale agreement that narrow the buyer’s claims under the representations and warranties. They usually include a total liability cap, a per-claim de minimis threshold, a basket, a claims period, exclusion of liability for matters disclosed to the buyer, and a ban on recovering the same loss twice. They do not protect a seller who caused the loss intentionally, because under Polish law a clause that the debtor will not be liable for harm it causes the creditor intentionally is void (Article 473 § 2 of the Civil Code).

More in the article “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

Material adverse change clause, MAC

Polish: klauzula istotnej niekorzystnej zmiany

A material adverse change (MAC) clause is a provision of a sale agreement that allows the buyer to terminate the agreement or refuse to close if the company’s position deteriorates materially between signing and closing. The agreement defines what counts as a material adverse change, often through a threshold decline in results or value, and excludes events affecting the market or the economy as a whole. A general definition easily leads to a dispute, so the seller seeks a narrow and measurable one.

Non-solicitation

Polish: zakaz pozyskiwania pracowników i klientów

Non-solicitation is a party’s undertaking not to induce the company’s employees or customers to leave or end their relationship with it for a set period. In a sale agreement it usually binds the seller, and in a non-disclosure agreement the buyer, who gets to know the company’s team and customers during the process. It supplements the non-compete. An agreement between businesses not to compete for each other’s employees may be treated as market sharing prohibited by Article 6(1)(3) of the Polish Competition and Consumer Protection Act. According to a 2024 guide by the Polish competition authority (UOKiK), such an arrangement may exceptionally be permitted when it is ancillary to another lawful agreement, which requires an assessment of whether it is necessary for and closely linked to that agreement. Independently of any contract, inducing people who work for a business not to perform or to improperly perform their duties, or inducing its customers to terminate or not perform their contracts with it, in order to benefit oneself or others or to harm the business is an act of unfair competition under Polish law (Article 12(1) and (2) of the Act on Combating Unfair Competition).

Parent company guarantee

Polish: gwarancja spółki dominującej

A parent company guarantee is an undertaking by a parent company to the other party to a deal that, to the extent specified in the guarantee, it will make its subsidiary’s payments, perform its other obligations, or pay a specified amount if the subsidiary fails to perform. In M&A, it is used when the buyer or seller is a special purpose vehicle with few assets, such as a fund’s acquisition vehicle or a holding company that will distribute the proceeds to its owners after the sale. It secures payment of the price or the buyer’s claims under the representations and warranties. A bank guarantee, an escrow account, and a holdback of part of the price serve a similar purpose.

Preliminary agreement

Polish: umowa przedwstępna

A preliminary agreement is an agreement under which one or both parties undertake to conclude a specified agreement, such as a stock purchase agreement, and which must set out the essential terms of that final agreement (Article 389 § 1 of the Polish Civil Code). In M&A, it is used when the transfer of shares depends on approvals or other conditions. The parties can also sign a sale agreement straight away, subject to conditions precedent. If the party obligated to conclude the final agreement evades concluding it, the other party can claim damages for the loss it incurred in reliance on the final agreement being concluded, unless the parties defined the scope of damages differently (Article 390 § 1 of the Civil Code). If the preliminary agreement meets the requirements for the validity of the final agreement, in particular as to form, the entitled party can also seek a court judgment compelling the other party to conclude it (Article 390 § 2 of the Civil Code). Claims under a preliminary agreement become time-barred one year after the day on which the final agreement was to be concluded or, if a court dismisses a claim for its conclusion, one year after the judgment becomes final (Article 390 § 3 of the Civil Code).

Not to be confused with: letter of intent, LOI.

Representations and warranties

Polish: oświadczenia i zapewnienia

Representations and warranties are provisions of a sale agreement in which the seller makes statements about itself, the shares being sold, and the company’s legal and factual condition, such as the accuracy of its financial statements, the absence of disputes and tax arrears, title to assets, and the validity of material contracts, and the agreement sets out the seller’s liability, usually an obligation to pay damages, if they prove untrue. In Polish agreements, they rest on freedom of contract (Article 353¹ of the Civil Code), and liability under them usually replaces the excluded statutory warranty for defects. The scope of that liability is narrowed by disclosures and by limitations of the seller’s liability, and the buyer can transfer the risk to an insurer under a W&I policy.

Not to be confused with: special indemnities, specific indemnities.

More in the article “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

Representations and warranties insurance, RWI

Polish: ubezpieczenie W&I / ubezpieczenie oświadczeń i zapewnień

Representations and warranties insurance (RWI, in Europe usually called warranty and indemnity or W&I insurance) is insurance against losses resulting from inaccurate representations and warranties by the seller. A buy-side policy covers the buyer’s losses, and a sell-side policy protects the seller against liability to the buyer, up to a set limit and subject to exclusions and a retention. It is most often taken out by the buyer, and the insurer usually waives subrogation against the seller except in the case of the seller’s fraud. The policy usually does not cover risks known to the buyer before signing or areas it excludes. It can let the seller receive more of the price at closing, reduce the amount held in escrow, and negotiate a low cap on its own liability for risks covered by the policy.

More in the article “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

Sandbagging

Polish: sandbagging

Sandbagging is a buyer’s pursuit of a claim for an untrue representation or warranty even though it knew before signing, or learned before closing, that it was untrue, for example from due diligence. A pro-sandbagging clause allows such claims, and an anti-sandbagging clause excludes them. Under the Polish statutory warranty for defects, a buyer that knew of a defect when signing has no claim (Article 557 § 1 read with Article 555 of the Civil Code), while the effect of the buyer’s knowledge on contractual liability under the representations and warranties depends on the agreement and its governing law. The parties therefore address the issue directly, usually together with the disclosure rules.

More in the article “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

Seller’s non-compete

Polish: zakaz konkurencji sprzedającego

A seller’s non-compete is the seller’s undertaking in the sale agreement not to carry on or take part in a business competing with the company sold, for a set period, within a set territory, and in a defined field of activity. It protects the value of the business the buyer has paid for, especially when the seller knows the customers and the market. It is a contractual obligation owed to the buyer. Its duration, territory, and scope should match what is needed to protect the value acquired, since an overly broad restriction can infringe competition law. The Polish Labor Code rules on non-competes, including compensation after employment ends (Articles 101¹ and 101² of the Labor Code), govern a separate agreement between an employer and an employee, which the company can sign with the seller if the seller stays on as its employee. Compliance is usually secured with a contractual penalty.

Special indemnities, specific indemnities

Polish: klauzule indemnifikacyjne

Special indemnities are provisions of a sale agreement in which the seller undertakes to pay the buyer or the company an amount equal to the loss if a specific, usually already known, risk materializes, such as a lawsuit, tax arrears for a given period, or an administrative fine. The claim arises when the risk described in the indemnity materializes, whether or not any representation was untrue, so disclosing that risk usually does not release the seller from payment. The seller’s liability limitations apply to them to a lesser extent or not at all. Payment under special indemnities is often secured with an escrow account or a holdback of part of the price.

Not to be confused with: representations and warranties.

More in the article “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

Polish: umowa sprzedaży udziałów lub akcji

A stock purchase agreement (also commonly called a share purchase agreement, SPA) is an agreement in which the seller undertakes to transfer a company’s shares to the buyer and the buyer undertakes to pay the price. In addition to the shares sold and the purchase price, it usually sets out the price mechanism and payment terms, conditions precedent, the parties’ interim covenants and closing obligations, the seller’s representations and warranties, special indemnities, limitations of the seller’s liability, a non-compete, governing law, and dispute resolution. Under Polish law, the Civil Code rules on the sale of things apply, as appropriate, to the sale of rights, including shares (Article 555 of the Polish Civil Code), but the parties usually exclude the statutory warranty for defects (Article 558 § 1 of the Civil Code) and replace it with liability under the representations and warranties. A transfer of shares in a limited liability company requires written form with notarized signatures, unless the company was formed using the statutory template and the parties use the template in the online system (Article 180 §§ 1 and 2 of the Commercial Companies Code, KSH). The buyer acquires shares of a joint-stock or simple joint-stock company recorded in a shareholder register when the buyer is entered in that register (Articles 328⁹ § 1 and 300³⁷ § 1 KSH).

Not to be confused with: preliminary agreement.

More in the articles “Earn-out. How 40 percent of a company’s price disappears in the agreement’s definitions” and “He sold his company for PLN 87.4 million. After 19 months the buyer demanded PLN 11.3 million back”.

If you are negotiating a company sale agreement, see the service page M&A Transactions (Mergers and Acquisitions).

Other sections of the glossary: Deal basics and types, Sale process and documents, Due diligence, Valuation, Price and settlement, Shareholders and investor rights, Financial statements and metrics, Stock exchange, Corporate banking. Index of all entries: M&A and corporate finance glossary.

M&A and corporate finance glossary: SPA and risk allocation

Change of control clause

Claims period

Claims procedure

Conditions precedent, CPs

Contractual penalty

De minimis threshold

Fundamental warranties

Governing law and arbitration

Indemnification basket

Interim covenants

Investment agreement

Liability cap

Limitations of the seller’s liability

Material adverse change clause, MAC

Non-solicitation

Parent company guarantee

Preliminary agreement

Representations and warranties

Representations and warranties insurance, RWI

Sandbagging

Seller’s non-compete

Special indemnities, specific indemnities

Stock purchase agreement, share purchase agreement, SPA