What the seller stands behind.
WHAT WARRANTIES ARE
Statements by the seller about the business, which you rely on.
WHY THEY MATTER
They allocate risk for things you could not discover, and they prompt disclosure.
WHAT THEY TYPICALLY COVER
Accuracy of accounts Ownership of assets Absence of undisclosed liabilities Compliance with law and licences Condition of contracts Employment matters Tax Litigation
WHAT DISCLOSURE DOES
Qualifies the warranties by revealing specific exceptions.
WHY IT MATTERS
Anything disclosed cannot be claimed for.
WHAT TO EXAMINE CAREFULLY
The disclosure document.
WHY
It is where problems are revealed, and it is frequently read too quickly.
WHAT TO DO ABOUT ANYTHING DISCLOSED
Assess it, and reflect it in price or structure.
WHAT INDEMNITIES DO
Provide a direct obligation to reimburse for identified risks.
WHEN TO USE THEM
For specific known issues: a tax exposure, a dispute, an identified liability.
WHY THEY DIFFER FROM WARRANTIES
They are not subject to the same limitations and proof of loss.
WHAT LIMITATIONS SELLERS NEGOTIATE
A cap on total liability A minimum claim threshold A time limit for claims
WHAT TO ESTABLISH
Whether the limits leave meaningful protection.
WHY TIME LIMITS MATTER
Problems frequently emerge after a full trading cycle, and short periods provide little.
WHAT TO CONSIDER
Whether the seller will actually be able to pay a claim.
WHY
Warranties from a seller with no assets are worth little.
WHAT TO PREFER
A retention, or payment deferred.
WHAT TO ENGAGE
A solicitor, to draft and negotiate these.
