Warranties in share purchase agreements

Learn about the different warranties available when creating a share purchase agreement.

The Seller  
1. The Seller is authorised to do business in all jurisdictions within or outside of the United Kingdom. This warranty confirms that the Seller is authorised to do business within or outside of the United Kingdom.

2. The Seller has the necessary power and authority to enter into and perform its obligations under the Share purchase agreement.

The Seller has the requisite authority to enter into the Share purchase agreement and perform the obligations under it, i.e. the Seller must be a shareholder of the target company and afforded powers in relation to those shares by a valid Shareholders’ agreement.

3. The Seller has no interest in a company likely to be or become competitive with the target company.

This warranty confirms that the Seller has no interest in any business in competition with, or likely to become competitive with, the target company. This is protected further in the Share purchase agreement through the use of restrictive covenants.

4. The Seller has made full and fair disclosure in the Disclosure letter

The Seller has made relevant disclosures in the Disclosure letter where possible. If a seller fails to disclose a relevant matter in respect of the warranties, he may be sued by the buyer for breach of warranty.
The Sale Shares  

5. The Seller is the sole owner and registered holder of the shares

This warranty confirms that the Seller is the only and true owner of the shares being sold.

6. The Seller is entitled to sell the shares to the buyer

The Seller is entitled to sell the shares to the buyer because he is their only and true owner.

7. The shares consist of the entire issued and allotted share capital of the target company

The shares being sold consist entirely of:
  • The entire issued share capital, i.e. the amount of nominal (on par) value of shares held by the shareholders, and
  • The allotted share capital, i.e. new shares that have been issued to existing shareholders or third parties.

8. There is no encumbrance affecting the shares

An encumbrance means any burden, interest, right or claim which adversely affects the use of, or the ability to transfer, the shares, eg security interests.
The Target Company and its Solvency  

9. Information given by the Seller about the target company is true and complete

This warranty confirms that information that is given by the Seller to the Buyer about the target company is true and correct, i.e. who the directors of the company are and when the company was incorporated.

10. The target company is incorporated, validly existing and in good standing

In order for a share purchase transaction to take place, the target company must be properly incorporated and in good standing. This means that the company must be formally recognised by Companies House. To be ‘in good standing’ means that the company has continued to exist since it was incorporated.

11. No order has been made or due to be made for the winding up of the target company

The target company must not be subject to a winding-up order, i.e. it must not be in the process of dissolving its business.

12. No administrators have been appointed in relation to the target company

The target company must not be under administration.

13. No administrative receiver has been appointed in relation to the target company

This warranty confirms that no receiver or administrative receiver has been appointed in relation to the target company. An administrative receiver is authorised to take custody of charged assets, run the company’s business and dispose of its assets in the event of insolvency.

14. The target company is not insolvent

A target company subject to a Share purchase agreement cannot be insolvent, i.e. unable to pay its debts. r

15. No statutory demand has been served upon the target company that has not been paid in full or withdrawn

A statutory demand is a written demand for payment of a debt. As long as the target company is solvent, i.e. able to pay off its debts, a statutory demand should be served upon it.

16. The target company is operating in accordance with all relevant laws and regulations

This warranty confirms that the target company is operating in accordance with all the relevant laws and regulations to which it is subject.

17. The target company has paid all due income tax

The target company should have no outstanding income tax liabilities against it.

18. The target company does not have any subsidiaries

This warranty confirms that the target company does not have any subsidiary companies.
Accounts  

19. The target company’s accounts give a true and fair view of the target company

The target company’s accounts should give a true and view of the target company’s affairs at the time the Share purchase agreement is signed.

20. Since the date of the last accounts provided, the target company has carried out its business in the ordinary and normal course and as a going concern

Since the date of the last accounts provided, the target company has been carrying on business as per usual and as a going concern, i.e. it has been functioning without the threat of liquidation for the foreseeable future.
Employment  

21. The target company has not made any offers of employment

The target company has not employed anyone since the date of the Share purchase agreement.

22. There are no claims threatened or pending against the target company by any current or former employees

This warranty confirms that no employee at the target company, whether current or former, has threatened or brought a claim against the target company, eg for unfair dismissal.
Insurance  

23. The target company’s insurance policies are in full force and effect. All premiums payable were paid when due

This warranty ensures that the target company has effective insurance in place and that any premiums have been paid.

24. There are no claims outstanding or pending under any of the target company’s insurance policies

Ideally, there should be no claims outstanding or pending under any of the target company’s insurance policies.
Intellectual Property rights  

25. The target company is the sole owner and exclusive user of its intellectual property rights

The target company should be the only and true owner of its intellectual property rights. The target company should have exclusive use of these rights.

26. There are no claims of infringement existing against the intellectual property rights used by the target company

This warranty confirms that there are no claims of infringement existing against the intellectual property rights used by the target company.

27. All agreements or understandings relating to the target company’s intellectual property rights are not the subject of any disputes

This warranty ensures that any agreements or understandings, etc in relation to the target company’s intellectual property rights, i.e. licensing agreements, are not the subject of any disputes.

28. The target company owns or is licensed to use all necessary software

If the target company uses software in the course of its business, it should have the necessary licenses to continue using that software.
Real Property  

29. The properties disclosed are the only land and premises owned, used or occupied for the purposes of the target company’s business

The Seller should ensure that any real property owned, used or occupied by the target company are duly disclosed to the Buyer.
Compliance  

30. The target company’s business has been conducted in accordance with all applicable laws and regulations

This warranty ensures the target company’s business in carried out in compliance with applicable laws and regulations.

31. All licences and consents required for the target company to carry on business are in full force and effect

Any licenses or consents needed for the target company to continue carrying on its business, i.e. building consents, should be in full force and effect.
Litigation  

32. The target company has not been engaged in any litigation or alternative dispute resolution

It is important that, at the time of the Share purchase agreement, the target company is not party to any litigation proceedings or engaged in any alternative dispute resolution, such as mediation.

33. There is no outstanding order, judgment, award or decision in relation to the target company

This warranty confirms that there are no outstanding orders or court judgments in relation to the target company.
Tax  

34. The target company has submitted all tax returns and given the relevant tax authorities all required information

At the time of the Share purchase agreement, the target company should have submitted all tax returns and submitted all required information associated with those returns.

35. All tax returns, information, statements, etc at the time of submission, were correct and accurate

This warranty ensures that all tax returns and accompanying information were complete and accurate at the time of the Share purchase agreement.

36. The target company has not been involved with any disputes with tax authorities

The target company should not be involved in any disputes with relevant tax authorities at the time of the Share purchase agreement.