Share Purchase Agreement Seller Warranties

When purchasing or selling a business, a Share Purchase Agreement (SPA) is a critical document that outlines the terms and conditions of the transaction. It is a legally binding agreement that protects the interests of both parties involved in the sale. One important aspect of the SPA is the Seller Warranties clause, which highlights the representations and promises that the seller makes to the purchaser.

Seller warranties in a SPA essentially assure the purchaser that the company being sold has no hidden liabilities, legal disputes, or financial issues that may arise in the future. The purpose of these warranties is to provide a level of protection to the purchaser in case any unforeseen issues arise after the sale. Seller warranties are typically divided into categories, and each category covers a specific aspect of the business being sold.

Some common categories of seller warranties include:

Title and Ownership: The seller warrants that they have the legal right to sell the shares and that there are no other claims on the company shares.

Financial Statements: The seller warrants that the financial statements provided to the purchaser are accurate and complete and that all material liabilities and financial information relating to the company has been disclosed.

Tax Matters: The seller warrants that the company has complied with all tax laws and has paid all taxes due to the date of the sale.

Contracts and Licenses: The seller warrants that all contracts and licenses held by the company are current and legally binding.

Employee Matters: The seller warrants that all employment contracts, matters, and benefits are in compliance with all applicable laws and regulations.

Intellectual Property: The seller warrants that the company owns or has the right to use all of its intellectual property, including patents, trademarks, and copyrights.

Environmental Matters: The seller warrants that the company is in compliance with all environmental laws and regulations.

The warranties clause is a crucial part of the SPA since it sets out the purchaser`s rights and remedies in case any of the seller`s warranties are breached. Breach of warranty can lead to legal action, and the purchaser may be entitled to damages, compensation, or the right to rescind the contract.

In conclusion, the seller warranties in a Share Purchase Agreement are a vital safeguard for purchasers when acquiring an existing company. They offer a level of protection against financial risks and liabilities associated with the company being sold. It is crucial to ensure that the warranties provided by the seller are comprehensive and accurate to avoid any legal disputes in the future. When drafting a SPA, it is essential to seek legal counsel to write concise, clear, and comprehensive seller warranties that meet all statutory requirements and legal regulations.