This section of the stock purchase agreement contains statements of fact and assurances made by the Seller that must be true and correct as of the closing date. In an aggressively summarized format, the Buyer is looking to have the following confirmed:
- That the Seller has the authority to enter into the purchase agreement and sell the securities described, and that the share count and capitalization represented are accurate.
- That the Company is duly organized, validly existing and in good standing.
- That the financial statements provided are complete and correct and fairly present the financial condition of the Company.
- That there are no undisclosed liabilities.
- That the company has all required permits and operates within the boundaries of the law.
- That taxes have been paid and returns have been filed.
- That Seller has provided information regarding the Company's litigation matters, employee matters, as well as the material contracts of the Company.
Summarized even further into one sentence: The Buyer needs to know that the Company’s key assets are covered, that it can legally operate and that the Buyer is protected from potential liabilities that might have been the Seller’s responsibility or that grew under Seller’s ownership.
Beyond this summarized format, the Representations and Warranties of the Seller or the Company can cover somewhere between 20 and 50 separate topics.
Focus of the Article: The type of business being acquired and the industry it operates in will have a big impact on which representations and warranties are of focus. For example, a manufacturer of lead-acid batteries for forklifts will be more focused on compliance with labor and environmental laws and the permits required to operate. In contrast, the acquisition of a business that has developed proprietary technology, say a database to manage hospital patients and predict outcomes, will place an emphasis on representations and warranties surrounding intellectual property.
Stock Purchase Agreement Language: The PDF notes available for download contain hypothetical language detailing the above sequence as it might appear in a stock purchase agreement.