Reps & Warranties on a Share Sale

Today I spent some time working my way through a share purchase agreement, largely amending it to narrow the representations and warranties that my client was being asked to give, on the sale of his shares to another shareholder of the same company. The buyer actually has a great deal of knowledge about the company, and is involved in its day-to-day operations. In this context, it is very important to examine what each of the parties has knowledge of, how much risk the purchaser will bear and how many assurances the vendor will give. This is often a major area of negotiation between the parties, as there is usually a time period, after the sale, during which a purchaser can sue a vendor for any representation or warranty that was false. If you are buying or selling shares in a company, this is an important area to review and on which to obtain legal advice. It just makes good business sense.

Selling Your Business - reps and warranties

If you are selling your business, you may be selling the assets or all of the shares of your corporation, but either way, the purchaser will likely want you to provide some representations and warranties with respect to your ownership of the assets, tax issues, employees, perhaps environmental warranties, etc. Depending upon the level of complexity of the transaction and the type of business being transferred, the reps could be as few as 5 or 6 and as many as 50 or 60. Either way, it is very important for a vendor to carefully read these representations and warranties to ensure that they are accurate and truthful. Often much of the negotiations around a transaction can centre around what reps and warranties will be given and whether they are limited to the knowledge and belief of the vendor or not. Make sure you understand what you are representing and warranting to a purchaser. If these statements are dishonest or inaccurate, a purchaser may have recourse against you after closing. Be sure to get legal advice about these items, prior to signing any agreement.