In an acquisition contract you can find a series of statements “representations and warranties” which typically read the seller doesn’t have liabilities (in addition to those set forth inside a disclosure schedule towards the acquisition agreement), the property owner’s financial statements are accurate, the assets are usually in good condition, etc. These items are important as they from the basis to discover the proper cost. While the property owner and buyer may choose to close quickly, these terms will probably be very important to every one party in the foreseeable future and thus require extensive negotiation.

There can be a tension involving the parties’ sale goals. The selling company wants the sale being an “as is” sale where after closing they have got no liability. In contrast, the consumer wants the representations and warranties to outlive the closing. The buyer will argue for indemnification on the first dollar even though the seller will argue for deductibles along with a ceiling in whole damages. Additionally, the customer seeks to visualize responsibility for just those liabilities that will be in the ordinary span of the business, while leaving unknown and contingent liabilities. Seller wants buyer to imagine responsibility its seller’s liabilities, known and unknown, liquidated or unliquidated, fixed and contingent. Seller’s counsel will argue for terms for example “material” and “knowledge of liabilities” to limit future liability, while the consumer’s counsel will seek terms like “liabilities known and unknown.”

Key representations and warranties for the consumer include items not appearing about the balance sheet, for instance, indemnification for environmental/pollution violations, employment discrimination claims, pension underfunding, antitrust violations, and OSHA violations. A tax issue of particular complexity is actually buyer or seller should bear the price tag on tax deficiency the place that the IRS disallows tax deductions for pre-acquisition tax years. Generally, the purchase agreement is drafted to produce the seller chargeable for all preacquisition taxes and interest. Seller may look to draft the agreement being liable for just the interest within the deficiency as well as the excess of the tax in the discounted present worth of the future deduction. Skilled drafting of representations and warranties in acquisition agreements is vital to protect the interests of both buyer’s and seller’s future.