What Is A Warranty In A Share Purchase Agreement

Shares are the main subject of share purchase agreements. Therefore, the seller`s main obligation results in principle from defects in the actions. Due to the absence of specific provisions on representations and warranties in the context of share purchase agreements, this obligation is subject to general provisions. As a result, the seller mainly states that the shares are properly issued by the target company, if necessary, the share certificates are properly issued and other similar issues directly affect the shares. The seller has the authority to enter into the share purchase agreement and to fulfil the obligations arising therefrom, i.e. the seller must be a shareholder of the target company and be granted powers over those shares through a valid shareholders` agreement. Sellers will report this during the sale transaction and buyers will be assured that they have protection for the guarantees and compensation included in the asset or share purchase agreement. For these reasons, sellers should not give compensation if possible. If they cannot be avoided, the seller must try to qualify and limit these warranties so that they do not significantly increase the seller`s exposure under the agreement. For a share purchase transaction to take place, the target company must be properly established and in good standing. This means that the company must be officially recognized by Companies House.

Being « in good standing » means that the company has continued to exist since its inception. This guarantee confirms that there are no outstanding court orders or decisions with respect to the Target Company. For example, the seller may give a guarantee that he is not aware of an ongoing or ongoing dispute against the company for sale. This would be an important security for a buyer. This is the third type of warranty above that leads to most discussions. Examples of this type of guarantee are as follows: The High Court ruled that no assurances had been given, so there could be no misrepresentation. In the Court`s view, the relevant statements of the SPA have always been referred to as « guarantees » rather than insurance, but beyond that, the suggestion that representation could be included in a contract did not work – the misrepresentations should include the provision of insurance before the date of the contract and not in the contract. However, the claim for breach of the guarantee was upheld because the accounts had in fact been inflated, so they did not give a true and fair judgment on the situation and had deviated from GAAP. The damage resulting from the breach of the guarantee was therefore assessed – on the basis of the damage – as the difference between the price paid at completion and its actual value. Due to turnover inflation, the actual value was estimated at £12 million and, therefore, the value of the breach of the guarantee was in the order of £5 million.

However, if the claim for misrepresentation had been accepted, the value of the claim would have been significantly higher. At this point, one can see the additional agreements becoming more and more popular and important, which are increasingly accompanied by co-purchase contracts, that is, . . .

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