A representation is a statement of fact the seller makes about the business. If it turns out to be wrong, the buyer has a contractual claim. That is the entire point of the section — it shifts the risk of the unknown from the buyer, who cannot see inside the company, to the seller, who has lived there.
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From $3,388.87 taxes included
Diligence tells the buyer what it can find. Representations cover what it cannot. Nobody reads every contract, every payroll record and every CRA notice in three weeks, so the seller is asked to stand behind a set of statements instead. If a statement is untrue at closing, the buyer sues on the contract. It does not have to prove the seller lied, was careless, or knew anything at all. That is why the section carries more weight than most sellers expect when they first read it.
Representations also serve a second function that gets overlooked. They force disclosure. A seller asked to state that there is no litigation, no employee grievance and no environmental order has to go and check, and whatever turns up goes into the disclosure schedules. A great deal of what a buyer learns about a business comes from the seller trying to make a representation true.
Practically, the section is negotiated as a set with three other things: the disclosure schedules that qualify it, the indemnity that pays on it, and the survival period that ends it. Arguing about a single representation in isolation is a waste of everyone's time.
Title and capacity come first. The seller owns the shares, they are validly issued and fully paid, there are no options or other rights outstanding, and the seller has the authority to sell. These are usually called fundamental representations, and they are treated differently from everything else because if one is wrong the buyer did not get what it paid for.
Then the business set: financial statements prepared consistently and fairly presenting the position; no undisclosed liabilities; tax returns filed and taxes paid; a complete list of material contracts, none in default; employees, compensation and any union or contractor arrangements; intellectual property owned or properly licensed; no litigation or regulatory proceedings; compliance with applicable law; insurance in force; and, where there is property or a lease, the environmental and premises representations.
In an asset deal add one more that matters in Ontario: that the assets being sold are all the assets used in the business. Ontario repealed the Bulk Sales Act in 2017, so an asset buyer no longer has that statutory creditor process to worry about — which makes the contractual representations and the search results the buyer's only real protection.
Sellers push back by adding qualifiers, and the qualifiers are where the negotiation actually happens. A knowledge qualifier turns a flat statement into a statement about what the seller knows, so define knowledge: whose knowledge counts, name the individuals, and say whether it includes what they would have known after reasonable inquiry. Without that definition, a corporate seller can argue it knew nothing at all.
Materiality qualifiers do the same job with a different lever, and layering them on top of a materiality threshold in the indemnity double-counts the seller's protection. A material adverse effect definition deserves particular care: it is the clause a buyer would rely on to walk away between signing and closing, and it usually carves out industry-wide, economic and legal changes so that it only captures something specific to this business.
If signing and closing are on different days, decide whether the representations are repeated at closing and what happens if one has gone off. A bring-down condition, an obligation to notify, and a rule on whether an update to the disclosure schedules cures the breach or merely reports it.
Ontario law lets the parties set this by contract. Section 22 of the Limitations Act, 2002 normally stops an agreement from varying a limitation period, but subsection 22(5) creates an exception for a business agreement — defined in subsection 22(6) as an agreement where none of the parties is a consumer. A share or asset purchase between businesses qualifies, so the survival periods you negotiate are the ones that apply.
The usual shape: general business representations survive for a defined period after closing, fundamental representations survive far longer or indefinitely, and tax representations run to the end of the period in which the CRA can reassess the pre-closing years. Fraud is carved out of every limit. Get the drafting precise, because a survival clause that is silent or ambiguous falls back to the default statutory position and neither side planned for that.
In Canadian practice, very little, and agreements almost always use both words together. Strictly, a representation is a statement of fact made to induce the other party to enter the contract, and a warranty is a contractual promise that a fact is true. The distinction can affect the theory of the claim and the measure of damages, but in a well-drafted private deal the indemnity clause defines the remedy anyway, which is why the indemnity is where the real negotiation happens.
Only if the representation was qualified by knowledge. An unqualified representation is a promise that a fact is true, not a promise that the seller believed it was true. That is exactly why sellers fight to add knowledge qualifiers to the softer representations and why buyers resist them on anything they cannot verify themselves. Fundamental representations about title and authority are almost never knowledge-qualified.
That depends on what the agreement says, and it should say. A pro-sandbagging clause states that the buyer's knowledge does not limit its right to claim. An anti-sandbagging clause states the opposite. If the agreement is silent, you are into an argument about reliance that nobody wants to have. Note separately that anything properly written into the disclosure schedules is generally carved out of the representation altogether, which is a different and usually decisive point.
It can be, mostly on larger deals or where the seller will not stay solvent or reachable after closing — a retiring owner, an estate, a fund winding up. The policy pays the buyer for breaches instead of the seller, which lets the seller take clean proceeds. It costs a premium and comes with its own retention and exclusions, and underwriters expect real diligence to have been done. On smaller Ontario deals a holdback or escrow usually does the same job for less.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.