In the world of business acquisitions, a share purchase agreement (SPA) is a common legal document that outlines the terms and conditions of the transaction. While these agreements are generally designed to protect the interests of both parties involved, it`s not uncommon for disputes to arise after the deal is done. One of the most common issues that can lead to disputes is a breach of warranty. In this article, we`ll take a closer look at what constitutes a breach of warranty in a share purchase agreement and what steps can be taken to address the issue.
What is a Warranty in a Share Purchase Agreement?
A warranty is essentially a promise made by the seller to the buyer that certain facts about the business being acquired are true and accurate. These facts may include things like the financial health of the company, the status of legal proceedings, and the accuracy of the information provided by the seller. Warranties are designed to provide the buyer with some assurance that they are making a good investment.
What is a Breach of Warranty?
A breach of warranty occurs when one of the warranties made in the SPA turns out to be untrue. For example, if the seller states that the company has no outstanding debt, but it is later discovered that there is a significant amount of debt, this would be a breach of warranty. Similarly, if the seller states that the company has no pending legal proceedings, but it is later discovered that there is an ongoing lawsuit, this would also be a breach of warranty.
What are the Consequences of a Breach of Warranty?
The consequences of a breach of warranty can vary depending on the specific terms of the SPA. In some cases, the buyer may be entitled to compensation for any losses they incur as a result of the breach. In other cases, the buyer may have the right to terminate the agreement and seek a refund of the purchase price. In extreme cases, the buyer may be able to sue the seller for damages.
What Should You Do if You Suspect a Breach of Warranty?
If you suspect that a warranty has been breached, the first step is to review the terms of the SPA to determine what your options are. In some cases, the seller may be willing to negotiate a settlement to avoid a lengthy legal battle. If the breach is significant and the seller is unwilling to work with you, it may be necessary to bring in legal counsel to protect your interests.
In summary, breach of warranty is a common issue that can arise in the context of a share purchase agreement. It`s important to carefully review the terms of the agreement and to be vigilant for any potential breaches. If a breach is suspected, it`s crucial to take swift action to protect your interests and to seek legal advice if necessary. By doing so, you can help ensure that your investment is well-protected and that your business acquisition proceeds smoothly.