Conditions Precedent in a Share Sale: What Sellers Should Avoid Before Signing

Signing a Share Sale and Purchase Agreement does not always mean the seller has completed the exit.

Many share sales are signed first and completed later because something still has to happen: a regulator must approve the transaction, a lender must consent, a third-party contract requires approval, the seller must complete a restructuring step, or another agreed condition must be satisfied.

Those conditions can be commercially sensible. They can also become one of the most dangerous parts of the deal for a seller if they leave completion uncertain, give the buyer broad discretion to walk away, or keep the seller tied up for months without a clear end point.

The key seller question is not simply, "What conditions precedent are in the SPA?" It is: which conditions are genuinely necessary, who controls them, how long do they last, and what happens if they are not satisfied?

Signing is not the same as completion

In a simultaneous signing-and-completion deal, ownership and payment may move at the same time.

In a split signing-and-completion deal, the parties become contractually committed first, but the actual transfer of shares and payment happen later once the agreed conditions have been satisfied or waived.

That gap period matters because the seller may already be bound by the SPA while still owning and operating the company.

The seller may also have reduced freedom to negotiate with other buyers, change the business, distribute cash, enter major contracts or take other actions without consent.

A condition precedent therefore affects more than legal mechanics. It affects how long the seller remains exposed before the exit becomes real.

Ask whether each condition is genuinely necessary

Start by challenging the purpose of every condition.

Some conditions may be unavoidable or commercially justified. Others may simply have been carried over from a buyer's precedent document.

For each condition, ask:

• What risk is this condition addressing?

• Who needs it?

• Can the issue be resolved before signing instead?

• Can it be handled as a completion deliverable rather than a condition?

• Does failure of this condition justify the whole transaction not completing?

A seller should avoid accepting a long list of conditions without understanding what each one is trying to achieve.

Separate objective conditions from buyer-controlled conditions

Not all conditions create the same level of uncertainty.

An objective condition can usually be tested by asking whether a defined event has happened. For example, a specified consent has been obtained or a particular restructuring step has been completed.

A buyer-controlled condition is more difficult.

If completion depends on the buyer being "satisfied" with something, determining that a matter is "acceptable", or confirming that no issue has arisen in its opinion, the seller may be giving the buyer a broad exit right after signing.

The seller should ask whether the condition can be expressed using a measurable standard instead.

The more subjective the condition, the more important it becomes to define what the buyer must assess, what evidence is relevant and whether the buyer can withhold satisfaction unreasonably.

Be cautious with buyer financing conditions

A seller should pay close attention where the buyer's obligation to complete depends on obtaining financing.

The seller may be locking up the business while the buyer still has not secured the money needed to pay the purchase price.

That creates a basic allocation question: should financing risk sit with the buyer or the seller?

If a financing condition is included, the seller should understand what financing has already been arranged, what steps remain, what effort the buyer must make, how long the condition can remain open and whether the buyer can simply decide not to proceed with available financing.

The seller should also ask what happens if the buyer's lender changes its position after signing for reasons unrelated to the company being sold.

Regulatory and third-party consents should be defined precisely

Some transactions may require regulatory, lender, landlord, contractual, shareholder or other third-party approvals depending on the company, sector and deal structure.

The seller should avoid vague drafting such as "all necessary consents must be obtained" unless the parties can identify what those consents actually are.

A better commercial process is to create a list.

For each consent, identify:

• the person or authority whose consent is required;

• why it is required;

• which party is responsible for obtaining it;

• what information or cooperation the other party must provide;

• whether the condition can be waived; and

• what happens if consent is refused or delayed.

This turns a vague risk into a manageable workstream.

Allocate responsibility for satisfying each condition

A condition should not sit in the SPA without an owner.

If the seller must obtain a landlord consent, the seller should know what steps it must take. If the buyer must obtain internal investment approval or financing documentation, that should be clear. If both parties must cooperate on a regulatory filing, each side's role should be identified.

Responsibility also affects leverage.

If the buyer controls satisfaction of a condition but suffers no consequence for delay, the seller may have little ability to force progress.

The SPA should therefore be tested for what effort each party is required to make and whether one party can cause a condition to fail through inaction.

Avoid open-ended due-diligence conditions after signing

One of the most seller-unfriendly structures is a deal that is signed while the buyer still has a broad right to walk away if due diligence is not "satisfactory".

If the buyer needs more diligence before becoming committed, the seller should ask whether signing should wait.

Once the SPA is signed, a broad due-diligence condition can allow the buyer to continue investigating while the seller is already locked into exclusivity and pre-completion restrictions.

If some limited diligence remains necessary, the seller should try to define the outstanding scope and the consequence of identified findings rather than accept a general buyer satisfaction test.

Use a realistic long-stop date

The long-stop date is the point at which the parties need a clear answer if the conditions are still outstanding.

Without an effective long-stop mechanism, the seller can remain trapped in a signed but uncompleted transaction for an extended period.

The date should reflect how long the genuine conditions are expected to take. A regulatory approval may need more time than a private third-party consent. A restructuring step may depend on other transaction work.

The important point is not to copy a "standard" number of days. It is to build a timeline around the actual conditions.

The SPA should also address whether the long-stop date can be extended, by whom and under what circumstances.

Decide who can waive each condition

Some conditions exist mainly for one party's protection. Others may be incapable of waiver because the underlying approval is essential to the transaction.

The SPA should make the waiver position clear.

From a seller perspective, a buyer should not necessarily be able to preserve a condition for months and then waive it at the last moment after the seller has incurred significant cost and lost other opportunities.

Equally, the seller may want flexibility to waive a condition that protects the seller if completion remains commercially attractive.

For each condition, ask who can waive it and what happens to related obligations if it is waived.

The gap period needs its own risk controls

Between signing and completion, the seller still owns the company but may no longer have complete freedom to run it in the ordinary way.

The SPA may restrict major decisions such as:

• paying dividends;

• taking on new debt;

• selling material assets;

• entering significant contracts;

• changing senior management remuneration;

• settling major disputes; or

• making other unusual commitments.

Some controls are understandable because the buyer does not want the business materially changed before completion.

But the seller should make sure the restrictions do not prevent normal operations or give the buyer day-to-day control before the buyer actually owns the company.

The company still needs to function during the gap period.

What if the business changes materially before completion?

Buyers may seek protection if something significant happens to the business between signing and completion.

The seller should examine carefully any clause that gives the buyer a right to walk away because of a material adverse change, deterioration or similar event.

The concern is definition.

If the trigger is too broad, ordinary trading volatility, loss of a customer, sector conditions or events outside the seller's control may create unexpected completion risk.

The seller should understand exactly what type of change is intended to justify non-completion and whether the drafting contains objective thresholds or exclusions appropriate to the deal.

Clarify what happens if a condition is not satisfied

The SPA should not stop at identifying the conditions. It should also explain the consequences of failure.

Possible questions include:

• Can either party terminate?

• Can only one party terminate?

• Can the condition be waived?

• Can the parties extend the long-stop date?

• What happens to deposits or other amounts already paid?

• Do confidentiality and other clauses survive termination?

• Does either party have a claim if the failure was caused by the other party's breach of its obligations?

The seller should know the exit route before signing the deal.

Preserve seller leverage after signing

Sellers often have their strongest leverage before they sign.

After signing, the business may be tied up, the seller may be subject to exclusivity, management attention may be consumed by the transaction and employees or counterparties may become aware of the proposed sale.

If the buyer still has broad discretion over completion, the balance of leverage can shift sharply.

That is why conditions precedent should be negotiated before signing with the same seriousness as price, warranties and liability limitations.

A high headline price is less valuable if the buyer can keep the seller committed while retaining broad rights not to complete.

Build a seller conditions-precedent matrix

A practical review tool is to reduce each condition to a simple matrix.

The matrix exposes conditions that are vague, unowned or open-ended.

When should a seller push back?

A seller should look closely at the CP regime if the draft SPA contains:

• buyer satisfaction conditions with no objective standard;

• open-ended due diligence after signing;

• buyer financing risk pushed entirely onto the seller;

• conditions with no clear responsible party;

• no realistic long-stop date;

• unilateral extension rights;

• pre-completion restrictions that interfere with ordinary business;

• a very broad material-adverse-change exit right; or

• unclear consequences if a condition fails.

These points do not automatically make a deal unacceptable. They are signals that completion risk is being allocated in a way the seller should understand before signing.

How Legal That Works can help

Conditions precedent sit at the point where the seller has committed to the transaction but has not yet received the completion outcome.

That is why they should be reviewed together with the purchase price, payment mechanics, warranties, disclosure, liability limits and completion agenda.

Legal That Works assists business owners, founders and shareholders with seller-side share transactions, including negotiating the Share Sale and Purchase Agreement and structuring the signing-to-completion process.

See our related guides on how selling a company in Malaysia works, what a seller should negotiate in the SPA, and earn-outs and deferred purchase price if part of the price depends on what happens after signing.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

View our Share Sale and Purchase Agreement service if you are preparing to sell shares in a Malaysian company or already have a draft SPA from the buyer.