Most founders I speak with are not trying to mislead buyers.

What they are concerned about is accidentally leaving out something important in the disclosure letter, which is the document that sets out exceptions to the representations and warranties given by sellers (Sellers’ Warranties) in a sale and purchase agreement (SPA).

Consider the following:
Not all representations and warranties carry the same weight.
Therefore, not every breach should have the same consequence.

Which is why it is useful to categorise the Sellers’ Warranties.

🔹 Fundamental warranties – Matters like ownership of shares, due incorporation, and valid existence of the company.

🔹 Tax warranties – Buyers often want protection from any surprise tax liabilities.

🔹 Business warranties – These relate to day-to-day operations and commercial matters.

By separating these categories, sellers can negotiate different remedies depending on the type of breach.

A breach of a fundamental warranty may give the buyer the right to terminate the SPA. A breach of a business warranty might only give rise to a claim.

This approach gives buyers the comfort they need, while protecting sellers from unfair risk.

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This post was first posted on LinkedIn on 24 April 2025.