Representations and warranties of the company: Overview, definition, and example
What are representations and warranties of the company in a contract?
Representations and warranties of the company in a contract refer to statements or assurances made by the company about specific facts, conditions, or obligations at the time of entering into the agreement. These provisions confirm the company's compliance with laws, financial standing, ownership of assets, or the accuracy of information provided. Representations are statements of fact, while warranties are promises that those facts are and will remain true.
For example, in an investment agreement, the company may represent that its financial statements are accurate and warrant that there are no undisclosed liabilities.
Why are representations and warranties of the company important?
These provisions are important because they provide the other party (e.g., investors, lenders, or buyers) with confidence in the company’s integrity and transparency. They help identify risks, allocate responsibility, and establish accountability if the representations or warranties prove to be false.
For SMBs, including representations and warranties in contracts helps build trust with partners, lenders, or investors and ensures a clear understanding of the company’s obligations and disclosures.
Understanding representations and warranties of the company through an example
Imagine an asset purchase agreement where the seller makes representations and warranties about the company’s assets. The agreement might state:
- “The Company represents and warrants that it has good and marketable title to the assets being sold, free and clear of any liens, encumbrances, or claims.”
If a lien on the assets is discovered later, the buyer could seek damages or remedies based on the breach of warranty.
An example of a representations and warranties clause for a company
Here’s how representations and warranties of the company might appear in a contract:
“The Company represents and warrants to the Investor as follows: (a) The Company is a corporation duly incorporated, validly existing, and in good standing under the laws of [Insert Jurisdiction]; (b) The Company has all necessary corporate power and authority to enter into this Agreement and to perform its obligations hereunder; (c) The financial statements provided to the Investor are true, complete, and accurate in all material respects and do not omit any material information; and (d) The Company is in compliance with all applicable laws, including but not limited to employment, tax, and environmental regulations.”
Conclusion
The representations and warranties of the company clause provides critical assurances about the company’s legal, financial, and operational status. It helps establish trust, allocate risks, and create accountability for the accuracy of the company’s statements.
For SMBs, including clear and detailed representations and warranties in contracts is essential for building confidence with partners, investors, or buyers, while protecting their interests. These provisions ensure transparency and reduce the likelihood of disputes or misunderstandings.
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.