What are representations and warranties in an Alberta business purchase agreement?
This answer covers the law of Alberta.
Representations and warranties are statements of fact that each side makes in the purchase agreement, and they allocate risk if the facts turn out to be wrong. The seller usually gives most of them, such as that the business is properly registered, that it owns the assets being sold, and that the financial information is accurate.
Typical topics include corporate status, ownership of assets, liens, contracts, taxes, employees and legal disputes. You can test some of them against public records. A Corporate Registry search can show registration date, owners, directors and legal addresses. A Personal Property Registry search can be requested by business debtor name, and questions about a result go to the party that registered the interest. A buyer may also give statements, and its registrant status matters for the GST election.
If a representation is false, the result depends on what the agreement says about remedies, time limits and caps, and on the facts. It may support a claim for compensation or, in some cases, affect whether the deal closes. Read these clauses closely before you sign, and have a lawyer explain how they would apply to your deal.
Key takeaways
- Representations and warranties are statements of fact in the agreement that allocate risk if the facts are wrong.
- Sellers typically give most of them, covering topics such as status, asset ownership, liens, contracts, taxes and legal disputes.
- You can test some statements against public records, such as a Corporate Registry search and a Personal Property Registry search.
- If one is false, the consequences depend on the remedy, time limit and cap wording in the agreement, so have a lawyer read those clauses.