Overall, representations serve the following purposes: Inaccuracies in a representation made by the seller can sometimes result in costly liabilities. If the sale is on an “as is, where is” basis, then the buyer is forced to bear the full risk. Due diligence analyzes the representations also. A buyer tries to elicit full disclosure from the seller. If it is false, the buyer is entitled to a remedy. This is why a representation, or a statement of facts about the past, the present or the future, is made for the transaction.įor example, if the document were to state that “the use of intellectual property in a firm does not infringe upon the rights of any third party,” then this statement needs to be a true fact. If this is not the case, the buyer expects to pay less to acquire the company. A buyer expects certain aspects of a firm to be in order.
A wide variety of statements are made in purchase and sale agreements, along with a schedule in which exceptions to the representations are listed.
