The process of purchasing or selling a business is comparable to the process of making other significant purchases or sales in one’s lifetime. Sellers want to be transparent with possible purchasers about the business they are selling, and buyers want to have a complete understanding of the business they are buying.


Due diligence and the acceptance of seller representations and warranties are two ways in which prospective business purchasers attempt to lessen their exposure to risk. As part of a contract, a seller may make certain promises and guarantees about the business’ assets, liabilities, and operations. Prospective purchasers often depend on such statements, among other factors, to help them decide whether or not to go through with a purchase and to help them protect against unanticipated risk.


Representations and warranties are in every purchase agreement. They contribute to the buyer’s due diligence on the seller and the business. Representations require sellers’ time and effort to provide relevant information and may include precise discussion. Purchasers may terminate the agreement or seek payment for damages caused by vendor misrepresentation or warranty violation.

The following are commonly included in representations and warranties:

  • employee information (including pension, perks, bonuses, and more)
  • insurance policies
  • compliance with applicable laws
  • financial statements offer an accurate picture of the company’s financial health 
  • tax compliance 
  • sellers’ authorization to consummate the acquisition
  • target business is lawfully formed
  • environmental issues 
  • intellectual property 
  • details on important contracts

Disclosure schedules are frequently used to provide (a) qualifications or exceptions to the representation and/or (b) additional information beyond the initial representation. 


In general, sellers prefer narrower scopes of coverage in representations, shifting risk to buyers, while purchasers want broader scopes. First draft of purchase agreements are frequently drafted by buyers’ counsel, thus sellers and sellers’ attorneys must review the deal. They should assess whether they may restrict statements by the seller’s knowledge, a materiality level, or a certain time period. In addition to the above, sellers should seek to acquire:

  • Disclosure for one representation allows for additional disclosures where appropriate
  • If the acquisition agreement is signed before the transaction closes, the opportunity to change disclosure schedules
  • Restricting representations and warranties to the purchase agreement and disclosure schedules, not additional papers or interactions


The acquisition of a target firm is contingent on the accuracy of the promises made by the seller and the information provided in the accompanying disclosure schedules. Prospective purchasers must do due diligence to protect themselves against unforeseen obligations. Disclosing liabilities to purchasers before closing the deal allows them to include them into the purchase price or revise the agreement to avoid extra expenditures. Negotiation is commonplace since buyers often want a different set of terms than sellers. In the latter stages of negotiations, buyers should push for a “sweeper” assurance from sellers that no major unfavorable change has occurred that has not been reported. 


Sellers should begin working on the disclosure schedules as soon as possible after first draft of the acquisition agreement have been exchanged. Ensuring ample time leads to a first draught of well-prepared disclosure schedules, which may reassure purchasers.


Counsel and senior individuals from each party’s company should examine and develop the statements and relevant disclosure schedules. Legal counsel manages disclosure schedules and develops legal disclosures for sellers; business representatives draft/review business-specific schedules. For a seamless acquisition or sale, attorneys and business representatives must communicate regularly.


You can succeed with a company transaction if you understand representations and warranties and disclosure schedules. Start early, interact consistently with your legal counsel, The team at Sodagar & Company Law Corporation can help you maximize your deal and reduce your liability. Access our will questionnaire by clicking here and become acquainted with the data we need to get your affairs in order.

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