Reps and Warranties 101 Course

General
October 24, 2025

What Are Representations and Warranties?

When you buy a business, the seller tells you certain things about what you’re buying — things like what assets the company owns, whether it’s in compliance with laws, if the financial statements are accurate, and whether there are hidden liabilities. Those statements are called representations and warranties.

A representation is a statement of fact as of the signing date (for example, “All tax returns have been filed and paid”).
A warranty is a contractual promise that those statements will remain true and that the seller will stand behind them if they turn out to be false.

Together, they’re the backbone of your legal protection as a buyer.

Why They’re Critical to Every Buyer

Buyers often assume due diligence is enough to protect them. It’s not.
No matter how thorough diligence is, you’ll never uncover everything. Representations and warranties fill that gap — they’re what let you hold the seller accountable after closing if something turns out to be wrong.

If a key customer was lost, if payroll taxes weren’t paid, if there’s an undisclosed lawsuit — your only way to recover your loss is through the reps and warranties. Without them, you’re left holding the bag.

The Dangerous Myth of “Simplified” Deals

You’ll often hear sellers (or sometimes their brokers or lawyers) say:

“Let’s do a simple deal — no need for all those reps and warranties.”
“We’ll just keep it clean and friendly.”
“Don’t overcomplicate things with lawyer talk.”

Here’s the truth: the more “simplified” the deal, the less protection you have. A deal without robust reps and warranties isn’t simple — it’s dangerous. You’re effectively buying the business as-is, which means every undisclosed issue becomes your problem the second you close.

Why Sellers Push for Limited Reps

Limiting reps and warranties isn’t about efficiency. It’s about shifting risk from the seller to you.
If the seller knows there are problems — expired permits, unpaid vendors, misclassified employees — they’ll push for “limited” or “standard” reps that prevent you from ever recovering those losses.

As a buyer, you should never accept that. The cost of negotiating strong representations and warranties is trivial compared to the risk of discovering a hidden liability six months later.

The Real Value of Legal Drafting

A good M&A lawyer doesn’t “overwork” a deal by negotiating these clauses — they protect you by defining exactly what the seller is standing behind. Every single paragraph matters. Each one represents a potential claim you might have if something turns out to be false.

This is why we spend the time to make sure our clients get full, detailed, and enforceable representations and warranties.
Because when something goes wrong — and in many small and mid-sized business acquisitions, something always does — they’re the only thing that stands between you and a total loss.