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Regardless of the structure, size, and terms of a business acquisition, the sales contract will contain several reps and warranty’s providing both parties with a clear understanding of the specific commitments being made in the transaction.  Representations and warranties are important components of the agreement involving significant negotiation between each of the party’s.  The involvement of a business lawyer with experience in preparing business purchase agreements is strongly recommended.  Both the buyer and seller should prepare in advance and determine which specific representations and warranties that are required to close the deal.  This advance preparation will assist in mitigating delays, reducing expenses, and eliminating surprises.

Common definitions for representations and warranties include:

A business acquisition involves a number of documents, the most important of which is the Asset Purchase Agreement (APA), commonly known as the purchase contract.  Legal experts will define a contract as a binding agreement involving two or more people or companies (called parties) setting forth the specific actions that each party will either perform or not perform.  Of all the clauses involved in a contract, few have the importance of the Indemnity Agreement. Indemnification is recognized as the act of making another party “whole” by compensating them for any damages & losses incurred or suffered.  The party who provides the indemnity is called the indemnitor or indemnifier while the party receiving the indemnity is called the indemnitee. These provisions will address the remedies for any breaches of covenants or representations and warranties (topic of a separate article) that are discovered after the closing.  Indemnification is purely a risk/responsibility technique that details the contract’s remedy should any material facts be found to be false or promises not honored.  The most simple description is the removal of liability from one side by transferring it to the other side.

While there are some law experts that draw a distinction between a Hold Harmless Agreement and an Indemnification Agreement, most professionals will use these terms either in tandem or in some cases interchangeably.  Black’s Law Dictionary, a well respected resource, has defined each of these terms as follows: