Classification: Deal Driver
Section: Representations and Warranties of Buyer
Negotiation Time: Minimal
Transaction Costs: Insignificant
Major Impact: Risk Management and Transaction Completion

Legal Proceedings

What is This? The Representations and Warranties of Buyer portion of the Agreement is used to save the Seller time and money. Rather than require the Seller to go through third parties to find certain information, the Buyer provides the information and must reimburse the Seller for any Losses it suffers if the information is false or misleading. Here, the Buyer provides information regarding its involvement in legal proceedings that could interfere with or prevent the transaction.

The Middle Ground: The Buyer represents that, other than those disclosed in the Disclosure Schedules, there are no legal actions, pending or threatened, that would prevent or delay the transaction. It also represents that no events have occurred and no circumstances exist that could lead to such an action delaying or preventing the deal.

Purpose: Even when a Buyer and Seller are in complete agreement on terms and want to move forward, a legal action can dismantle the entire acquisition. Including this representation shifts the risk associated with a legal challenge to the party that is most likely to have knowledge of it, which in this case is the Buyer.

Buyer Preference: Other than the representation regarding pending legal actions, the Buyer wants its representations in this section to include knowledge qualifiers. If part of the Purchase Price includes a transfer of the Buyer’s stock or a seller note, the Buyer may also have to include a statement regarding its property or assets, as the Seller did in its Legal Proceedings representation. If not, the Buyer will want to avoid making any extraneous representations that do not directly relate to the acquisition.

Seller Preference: The Seller wants to avoid including knowledge qualifiers as a way to encourage the Buyer to investigate whether any potential claims could be made that would stop the transaction. If the future success of the Buyer’s company is relevant to the Seller’s payout, either in terms of the payout level or the Buyer’s ability to make the payments, the Seller may also seek a representation relating to the assets and property of the Buyer.

Differences in a Stock Sale Transaction Structure: None.


We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.