Legal & Compliance
Representations and Warranties
Statements of fact made by a seller in an M&A transaction that the buyer relies on — breaches can result in indemnification obligations.
Representations and warranties (reps and warranties) are factual statements made by a company (and sometimes its founders) in a purchase agreement. Common reps: the company is duly organized, financial statements are accurate, there are no undisclosed liabilities, IP is owned by the company, no pending litigation, employees have signed IP assignment agreements. If a rep turns out to be false (breach), the seller must indemnify the buyer for resulting damages. This creates post-closing liability for startup founders in acquisitions — one reason deal counsel reviews reps carefully. Representations and warranties insurance (RWI) transfers the risk of rep breaches to an insurer rather than sellers, allowing founders to receive full proceeds at close.