When it comes to mergers and acquisitions, share purchase agreements (SPAs) are essential. SPAs are legal documents that outline the terms and conditions of a share sale between buyer and seller. One of the most important aspects of an SPA is representations.
Representations are promises made by the seller to the buyer regarding the condition of the business being sold. These promises cover a wide range of information, such as the accuracy of financial statements, the legality of the business`s operations, and the absence of any undisclosed liabilities.
SPAs contain a section on representations because they provide the buyer with a level of protection. By making representations, the seller is promising that the information being provided is accurate and that there are no hidden surprises that could impact the buyer`s financial position or reputation.
The buyer will often rely heavily on the representations provided in the SPA to make their decision on whether to purchase the shares. If the buyer later discovers that a representation was false or misleading, they may have legal recourse against the seller.
One common example of representations in an SPA is the warranty that the business being sold has no outstanding legal or regulatory issues. Another example is the assurance that all taxes have been paid and there are no outstanding tax liabilities.
It`s worth noting that representations are only effective if they`re accurate and based on a full and complete disclosure of all material information. In many cases, the seller will be required to provide the buyer with extensive due diligence reports before the SPA is signed to ensure that the representations are as accurate as possible.
In conclusion, representations are a crucial component of share purchase agreements. They provide the buyer with assurance that the information being provided is accurate and transparent. Any misrepresentations can be costly for both parties, so it`s important to take them seriously and ensure a thorough due diligence process is in place.