Representations and Warranties

Representations and warranties (reps and warranties) are factual statements made by the seller in a purchase agreement about the condition of the business being sold. They cover topics such as the accuracy of financial statements, the completeness of disclosed contracts, the absence of undisclosed litigation, the status of intellectual property ownership, compliance with applicable laws, and the accuracy of tax filings.

If a representation proves to be inaccurate after closing — for example, an undisclosed tax reassessment or an unidentified regulatory violation — the buyer can make an indemnification claim against the seller. The survival period for most general reps and warranties is 12–24 months post-closing; specific higher-risk reps (tax, environmental, fraud) often survive longer.

Reps and warranties inform the scope and focus of the buyer's due diligence: the buyer verifies the seller's representations and identifies which ones to negotiate for stronger indemnification protection if verification is incomplete. Sellers negotiate limitations on their exposure through baskets (minimum claim thresholds), caps (maximum liability), and time limits.

See also: Indemnification, Holdback, Escrow, Due Diligence, Purchase Agreement.