No misstatement or material omission: Overview, definition, and example
What is no misstatement or material omission?
No misstatement or material omission refers to a legal representation in contracts, financial disclosures, and regulatory filings that ensures all provided information is accurate, complete, and free from misleading statements or omissions of material facts. A misstatement occurs when false or incorrect information is presented, while a material omission happens when important facts are intentionally or negligently left out.
For example, in a securities offering, a company must ensure that its financial statements do not contain misstatements or material omissions that could mislead investors.
Why is no misstatement or material omission important?
This clause is important because it ensures transparency, accuracy, and legal compliance in contracts and financial transactions. Misstatements or omissions can lead to legal disputes, regulatory penalties, investor lawsuits, and reputational damage.
For businesses, including a no misstatement or material omission clause in agreements helps protect against fraud, misrepresentation claims, and liability by ensuring that all material facts are disclosed.
Understanding no misstatement or material omission through an example
Imagine a company going public files a prospectus with the Securities and Exchange Commission (SEC). If the document fails to disclose an ongoing lawsuit that could significantly impact the company’s financial health, this would be considered a material omission. If investors suffer losses due to the missing information, the company could face legal action.
In another scenario, a seller of a business provides financial records to a potential buyer. If the seller misstates revenue figures or omits key liabilities, and the buyer later discovers the inaccuracies, they may sue for misrepresentation and financial damages.
An example of a no misstatement or material omission clause
Here’s how a no misstatement or material omission clause might appear in an agreement:
“Each Party represents and warrants that all information, statements, and disclosures made in connection with this Agreement are accurate and complete in all material respects and do not contain any untrue statements of fact or material omissions that would render any disclosed information misleading.”
Conclusion
A no misstatement or material omission clause ensures that all information provided in a contract or financial disclosure is truthful, complete, and legally compliant. It helps protect businesses, investors, and stakeholders from fraud, misrepresentation, and financial risk.
By including a no misstatement or material omission clause in agreements, companies can establish a legal safeguard against false disclosures, regulatory violations, and contract disputes, ensuring transparency and accountability in business transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.