LegalDiligence
Representations and Warranties
Also known as: R&W, reps, representations
The seller's formal legal statements about the condition of the business — financials are accurate, contracts are enforceable, there's no undisclosed litigation, etc. Breaches trigger indemnification.
WHY IT MATTERS
Reps and warranties are the seller's written guarantees. They typically run 20-40 pages in a purchase agreement and cover every aspect of the business — corporate organization, financial statements, contracts, IP, employees, taxes, litigation, environmental, compliance. Narrow reps ("to the seller's knowledge") are seller-friendly; broad reps (absolute statements with no knowledge qualifier) are buyer-friendly. Sophisticated buyers also demand "fundamental reps" (on title, capitalization, authority) that survive longer and have higher caps. A have-to-sell founder often signs broad reps with personal indemnification attached; a want-to-sell founder negotiates tighter language and uses RWI insurance to backstop.