Representations and Warranties

Representations, warranties and indemnities are the central instrument for allocating risk in the share purchase agreement. With warranties, the seller assures the buyer of certain characteristics of the target company – such as ownership, financial statements, contracts, taxes or litigation. If these assurances turn out to be incorrect, a contractual claim for damages arises.

Indemnities go further: they oblige the seller to fully hold the buyer harmless against specifically known or identified risks – for example an ongoing tax proceeding or an identified environmental risk. While warranties are typically subject to liability caps, de-minimis thresholds and a basket, indemnities are often subject to stricter conditions.

Which warranties are required at all derives largely from the results of the due diligence. Escrow accounts or W&I insurance serve as security. In our M&A advisory, we negotiate a balanced catalogue of warranties.