Completion Accounts vs Locked Box: Which Pricing Mechanism Is Right for Your UK Share Sale or Purchase?

When buying or selling shares in a UK company, one of the most important and frequently misunderstood decisions is how the purchase price will be calculated.

In most share sales and purchases, this comes down to a choice between two pricing mechanisms:

• Completion accounts
• Locked box

Both are widely used in UK M&A transactions and neither is inherently better than the other. However, choosing the wrong mechanism for your deal can lead to disputes, delayed payments or unexpected value erosion.

This article explains how completion accounts and locked box mechanisms work, the advantages and disadvantages of each and how to decide which is right for your transaction.

What are completion accounts?

Under a completion accounts mechanism, the buyer and seller agree a provisional purchase price at the outset of the transaction.

After completion, a set of completion accounts is prepared to reflect the company’s actual financial position at the completion date. These accounts typically focus on:

• Cash
• Debt
• Working capital

The purchase price is then adjusted up or down depending on how the actual figures compare with the agreed estimates.

In simple terms, completion accounts ensure that the buyer pays for what the company actually looks like at the point they take control.

Advantages and disadvantages of completion accounts

Advantages for buyers

• Greater financial accuracy
• Reflects the true value of the business at completion
• Particularly useful where finances fluctuate

Disadvantages for sellers

• Price uncertainty until weeks or months after completion
• Preparation and negotiation of accounts can be time-consuming
• Increased risk of disputes over accounting treatment

Completion accounts often work best where:

• The business is volatile or seasonal
• There is a long gap between signing and completion
• The buyer wants maximum accuracy and protection

What is a locked box mechanism?

A locked box mechanism fixes the purchase price by reference to historical accounts, usually prepared at an agreed “locked box date”.

From that date onwards, the seller agrees not to extract value from the company other than permitted items. Any unauthorised extraction of value is referred to as “leakage”.

Unlike completion accounts, there are no post-completion price adjustments, except to compensate for prohibited leakage.

Under a locked box structure, the price is agreed upfront and the seller retains the benefit of trading between the locked box date and completion.

Advantages and disadvantages of a locked box

Advantages for sellers

• Price certainty from the outset
• Faster and cleaner completion
• No post-completion arguments about accounts

Considerations for buyers

• Heavy reliance on the quality of historical accounts
• Need to monitor and police leakage
• Less protection if the business underperforms before completion

Locked box mechanisms are commonly used where:

• The seller has strong bargaining power
• The business has stable, predictable finances
• The transaction is competitive or auction-driven

Completion accounts vs locked box: which should you choose?

There is no universally “safe” option, only the right option for your deal.

The decision will usually depend on:

• Risk allocation between buyer and seller
• The financial stability of the business
• The transaction timetable
• Relative negotiating strength

A mechanism that looks simple on paper can conceal significant commercial risk. Early legal and accounting advice can materially reduce the risk of disputes and post-completion friction.

How we can help

Choosing between completion accounts and a locked box mechanism is as much a strategic decision as a legal one.

Mignonette Ellis advises buyers and sellers on UK share sales and purchases, including negotiating and documenting completion accounts and locked box structures for owner-managed businesses and mid-market transactions.

If you are considering a transaction and would like practical, commercial advice on pricing mechanisms and risk allocation, please get in touch.