Glossary · Deal documents
Representations and warranties
Also called reps and warranties
Definition
Representations and warranties are statements the seller makes in the purchase agreement about the state of the business: the accounts are accurate, there are no undisclosed disputes, the key contracts are valid. If one proves untrue, the buyer can claim. The seller limits that risk by disclosing known issues against them.
Related terms
Disclosure letter The seller's list of known exceptions to its warranties, which limits what the buyer can later claim for. W&I insurance Insurance that pays out if the seller's warranties in a deal turn out to be wrong. Indemnity A promise to repay a specific loss in full, often used for known risks found in due diligence. Share purchase agreement The contract by which a buyer acquires the shares of a company, with the price, warranties and conditions. Asset purchase agreement The contract for buying selected assets and liabilities of a business, instead of its shares. Change of control clause A contract term that lets the other party end or renegotiate the contract if the company is sold. Confidential information memorandum The detailed sales document a seller's adviser sends to buyers after they sign an NDA. Letter of intent A mostly non-binding document that sets out the main terms of a deal before the final contract is negotiated.