Legal
Representations and warranties are the seller's written statements of fact about the company, which the buyer relies on in the purchase contract.
Representations and warranties, often called reps and warranties, are promises in the purchase agreement. You state that facts about the company are true, such as financial statements, taxes, contracts, employees, legal claims and ownership.
For example, you state that the financial statements are accurate and that no lawsuits are pending. If a statement is false, the buyer may claim money back from you.
They matter because they set your risk after closing. Longer lists and weaker limits expose you more. Ways to manage that risk include careful drafting, disclosure schedules and holdbacks such as escrow. Some deals also use special insurance, so ask your lawyer.
Good records make accurate statements easier. Clean books and a tidy data room reduce surprises. Review what buyers check in due diligence and in the due diligence checklist for owners.
Related terms
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