Representations and Warranties: What Sellers Are Really Agreeing To

Buried in every business purchase agreement is a section called representations and warranties. Sellers often skim past it, but it is one of the most important parts of the contract, because it defines what you are legally promising about your business. Getting it right protects you from being pulled back into a deal long after closing. Here is what reps and warranties really mean for a seller.

What they are

Representations and warranties are formal statements of fact you make about the business, and promises that those statements are true. They cover things like: the financials are accurate, you actually own the assets you are selling, there are no hidden lawsuits, taxes are paid, and you have disclosed what you are required to disclose. The buyer relies on these statements when deciding to buy and how much to pay.

Why they matter after closing

Here is the key point: reps and warranties usually survive the closing for a period of time. If one of your statements turns out to be false and the buyer suffers a loss because of it, they may be able to come back to you for compensation. This is why accuracy and honesty during the sale are not just good ethics, they are legal protection. The single best way to avoid trouble is full, honest disclosure up front.

Limit your exposure

You do not have to accept unlimited, open-ended liability. These are negotiated, and sellers commonly limit their exposure with tools like:

• Survival periods. A time limit after which most reps expire and you are off the hook.
• Caps. A ceiling on the total amount you could ever owe.
• Baskets. A minimum threshold of losses before the buyer can make a claim at all.

Disclosure is your friend

The reason reps and warranties rarely become a problem is simple: honest sellers disclose the warts, so there are no surprises to come back on them. If there is a pending issue, a lease quirk, or a customer situation, we put it on the table. A disclosed issue is one the buyer accepted. A hidden one is a liability waiting to happen.

Sign with confidence

You should understand exactly what you are promising before you sign, and your attorney and I make sure you do. I help sellers approach reps and warranties the right way: honest, well-documented, and reasonably limited. The first conversation is free and completely confidential. Call me at (904) 735-8994 or reach out here.

Ryan C. Winter

Business Broker with Truforte Business Group · Licensed BK3362329

Ryan helps business owners across Florida sell their companies with preparation, process, and precision. Based in St. Augustine and serving the entire state, from Jacksonville to Miami, since 2018.

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• Category: Business Broker Tips, Selling a Business