Warranties in private company SPAs

Warranties in private company SPAs: what buyers care about

In private company acquisitions, warranties are one of the most heavily negotiated parts of a share purchase agreement (SPA). Sellers often see them as a long list of legal statements. Buyers, on the other hand, view them as an important tool for understanding risk, allocating responsibility and protecting value after completion.

While warranty schedules can be extensive, experienced buyers are rarely interested in negotiating every clause with equal intensity. Their focus is usually on the warranties that reveal genuine commercial risk.

What are warranties in an SPA?

Warranties are contractual statements made by the seller about the target company and its business at the point of sale.

They commonly cover areas such as:

• Ownership of shares;
• Accounts and financial records;
• Material contracts;
• Litigation and disputes;
• Employees;
• Intellectual property;
• Tax matters;
• Regulatory compliance; and
• Property and assets.

If a warranty proves to be untrue and the buyer suffers loss as a result, the buyer may have a claim against the seller, subject to the terms of the SPA.

Warranties, therefore, serve two key purposes:

They encourage full disclosure before completion.
They provide a remedy if material issues later emerge.