Representations and warranties

Representations and warranties are the statements of fact a seller makes about the business in the purchase agreement, together with the promise that those statements are true and a remedy for the buyer if they turn out not to be.

What they cover at $50k–$150k

The list at this size is short and practical. The seller owns the code and the brand outright and has the right to transfer them, the revenue and cost figures supplied are accurate, open-source licences in the dependency tree have been complied with, no contractor or former collaborator retains rights in the work, and there is no claim, dispute or liability that has not been disclosed. Warranties are usually capped at a proportion of the price and limited to a window of twelve to twenty-four months after completion.

Where it bites

Disclosure is the mechanism that decides everything. Anything the seller sets out in writing before signing is normally carved out of the warranty, which means a disclosed problem is the buyer's to price and an undisclosed one stays the seller's. That cuts both ways. Sellers who disclose a messy thing early protect themselves; sellers who hope nobody notices are the ones still exposed a year later.

A worked example

A $120,000 transfer completes on a warranty that the seller owns all intellectual property in the product. Four months later the buyer finds that the billing module was written by a contractor in 2023 who never signed an assignment, and who now claims the code is his. The warranty gives the buyer a defined route to recover the cost of resolving it, within the agreed cap and time limit, rather than an argument with no framework.

Why it matters when you exit

Warranties are where diligence and price meet. A seller who has traced ownership of every asset before listing can give them without flinching.

This is general information. A deal at this size still warrants a lawyer's eye before anything is signed.

Related: ip-assignment, asset-purchase-agreement, due-diligence