When it comes to share purchase agreements, warranties and indemnities play a crucial role in ensuring that the buyer is protected against any potential risks associated with the purchase. The purpose of warranties and indemnities is to provide the buyer with assurance that the seller has disclosed all material information related to the company, and that they will be held accountable for any misrepresentations or breaches of contract.
So, what exactly are warranties and indemnities, and how do they work in a share purchase agreement?
Warranties are essentially statements made by the seller about the company being sold. These statements can cover a wide range of topics, from financial performance and tax status to employee contracts and regulatory compliance. The purpose of warranties is to provide the buyer with a clear understanding of the company`s current state of affairs and any potential risks that may exist.
If the buyer discovers that a warranty is untrue after the sale has been completed, they can make a claim against the seller for breach of warranty. This could result in the seller having to compensate the buyer for any loss suffered as a result of the breach.
Indemnities, on the other hand, are promises made by the seller to compensate the buyer for any losses that may arise from specific events or circumstances. These could include things like undisclosed liabilities, breaches of contract, or regulatory fines. The purpose of indemnities is to give the buyer additional protection beyond the warranties provided in the agreement.
If a breach of warranty occurs, the buyer will need to prove that they have suffered a loss as a result of the breach. In contrast, with indemnities, the buyer does not need to prove that a loss has occurred – they simply need to show that the event or circumstance covered by the indemnity has taken place.
Both warranties and indemnities are important tools for managing risk in a share purchase agreement. They provide the buyer with a level of protection against unforeseen problems that may arise after the sale has been completed. However, it`s important to note that the inclusion of warranties and indemnities may result in a higher purchase price, as the seller will be taking on additional risk.
When negotiating a share purchase agreement, it`s important to carefully consider the warranties and indemnities that are included. The buyer should be sure to ask for all relevant and necessary warranties, and the seller should be prepared to provide them. Similarly, indemnities should be carefully drafted to ensure that they cover all potential risks and events.
In conclusion, warranties and indemnities are important components of a share purchase agreement. They provide the buyer with protection against potential risks and give the seller an incentive to disclose all relevant information. When negotiating a share purchase agreement, it`s important to carefully consider these provisions and ensure that they are tailored to the specific needs of the transaction.
