Representations and Warranties by Sellers of Businesses
Sellers typically provide buyers of businesses with certain representations and warranties as part of the purchase agreement. They are generally negotiated by the attorneys representing the parties.
Following is a summary or checklist of common representations and warranties found in business sale/purchase agreements in California. The list is not exhaustive and business buyers and sellers are cautioned to confer with their own legal counsel regarding this important subject.
- Seller is the owner of the assets or shares being sold and are free of any liens.
- Seller has the authority to sell or transfer the assets or shares.
- The company is a corporation or LLC, duly organized, validly existing, and is in good standing with all government entities.
- A change in control of the business will not allow a customer, supplier, lender, or other party to cancel or accelerate any contract.
- No options, warrants, or other agreements concerning a claim to the ownership of the company exists.
- Seller has provided the buyer with copies of all written contracts between the company and any third-party including insurance policies.
- No government taxing authorities have filed liens against any assets of the company.
- Seller has no insurance claims pending.
- All financial statements and tax returns provided to the buyer are accurate and correct.
- There are no lawsuits pending or threatened against the company.
- Seller has provided the buyer with a list of any credit or debit cards issued to employees.
- Seller is not aware of any labor threats or claims.
- Seller has provided the buyer with a schedule setting forth all compensation payable to all employees and any amounts accrued and currently owing.
- Seller has provided the buyer will all fictitious business names, patents, patent applications, trademarks, trademark applications, trade names, service marks, service mark applications, customer/client lists, copyrights, and copyright applications.
- All computer software and databases used by the seller are owned by the seller.
- The seller has never stored, transferred, or disposed of any hazardous materials.
- Seller has provided the buyer any environmental reports it has ever obtained or received and is in strict compliance with all environmental laws.
- All inventory being transferred is in good merchantable condition and is owned by the seller.
- Seller is not aware of any existing customer or client who is intending to purchase less than previous levels of merchandise or services.
- Seller has provided a complete list of its vendors, contractors, and service providers to buyer.
- Seller has provided a complete list of existing customers and clients to buyer.
- No director or officer of the company has been convicted of a crime or is currently in bankruptcy.