What representations and warranties should a business seller expect?

By Michael D. Rubin, CEO & Founder · September 2026 · 839 words

Expect to promise the buyer, in writing, that the facts you provided about the company are true: that you own what you are selling, the financial statements are accurate, taxes are paid, contracts and permits are in order, and there are no undisclosed lawsuits or liabilities. These promises are the representations and warranties in the purchase agreement, the final contract that transfers the business.

Your goal is not to avoid giving them. Every buyer will ask. Your goal is to make them accurate, limited to what you actually know, and backed by a complete list of exceptions.

What the terms mean

A representation is a statement of fact about the company as of a certain date, usually signing and closing. A warranty is a promise that the statement is true. In practice the two words travel together and are often shortened to “reps.”

They matter because they are how the buyer gets money back if something turns out to be wrong. If a rep is false and the buyer suffers a loss, the purchase agreement usually requires you to repay that loss. The mechanics of that repayment, such as caps, escrow and deadlines, are negotiated separately from the reps themselves.

In most deals the reps are given twice: once when the agreement is signed, and again on the closing day through a certificate confirming they are still true. Anything that changes in between, such as a new customer dispute, must be added to the schedules before closing.

The categories almost every seller signs

• Ownership and authority: you own the shares or assets and have the right to sell them.
• Financial statements: the statements you provided are accurate and prepared consistently.
• No material changes: nothing significant has gone wrong since the last statements.
• Taxes: returns have been filed and taxes paid.
• Contracts: major customer, supplier and lease agreements are valid and not in default.
• Employees and benefits: pay, classification and benefit plans comply with the law.
• Compliance and permits: the business holds the licenses it needs and follows applicable rules.
• Litigation: there are no lawsuits or threatened claims beyond those disclosed.
• Assets: equipment, inventory and receivables are in the condition described.
• Environmental and intellectual property: where relevant, no contamination issues and clear rights to names, software and designs.

Fundamental reps versus general reps

Buyers usually treat a few reps as fundamental: ownership, authority to sell and, often, taxes. These go to the heart of what the buyer is paying for, so they tend to last longer after closing and carry higher limits on what you could owe.

Everything else is a general or business rep. These typically expire sooner and are subject to a lower cap. Knowing which bucket each rep falls into tells you where your real exposure sits, and your attorney will negotiate both the length and the limit for each group.

Four tools that keep your promises fair

• Knowledge qualifiers. Phrases such as “to the seller’s knowledge” limit a rep to what you actually know. Define whose knowledge counts and whether it means actual knowledge or what you should have known.
• Materiality qualifiers. These limit a rep to issues that are significant, so a minor paperwork lapse does not become a claim.
• Disclosure schedules. These are the lists of exceptions attached to the agreement: every lawsuit, every expired permit, every customer dispute. A problem you list is disclosed; a problem you leave off can become a breach. This is the most important document you will help prepare.
• Sandbagging language. This decides whether the buyer can bring a claim over something it already knew about before closing. Your attorney will want to limit it.

Mistakes that turn reps into claims

The most common mistake is treating the disclosure schedules as paperwork to rush through at the end. The second is assuming that because the buyer saw something in due diligence, it does not need to be listed. The third is signing reps about future results, which no seller can promise. Our long read on what causes a business sale to fall apart in due diligence covers the issues buyers most often find late.

Clean preparation shrinks all of this. When the records reconcile and known issues are written down before marketing starts, the reps become a description of the business rather than a gamble. Preparing your business for sale covers what to put in order.

How we work with your attorney on this

Your transaction attorney drafts and negotiates the reps and schedules; that is legal work, and it should be theirs. Our role is to make sure the facts buyers saw in the marketing package, the financial recast and diligence match what you will be asked to promise, so there are no gaps between what was shown and what is signed. Legal documents are step nine of our ten-step process, and a principal of the firm stays involved through closing.

If you are starting to think about a sale and want to know what buyers will ask you to stand behind, contact us for a confidential conversation.

Where this fitsHow a business sale works, step by step →