The investor’s field guide · W
Warranties and indemnities
Contractual promises and risk-allocation provisions that may give a buyer recourse when agreed conditions are breached.
Explained by the editorial team
In UK acquisition practice, a warranty is commonly a contractual statement about the business. An indemnity commonly allocates a specified loss or liability to one party. Their operation depends on the drafting and governing law; terminology and remedies differ across jurisdictions.
An illustrative situation
A seller might warrant that specified accounts have been prepared on an agreed basis. A separate indemnity might address a known dispute. Those provisions serve different purposes and do not mean the buyer is protected against every disappointing outcome.
What to examine
Check disclosure, financial caps, time limits, claim procedures and exclusions. Consider whether the party giving protection will have funds to meet a claim. An escrow or insurance arrangement may address some collection risk, subject to its own limits. Due diligence and contractual protections complement one another: neither makes the other unnecessary. Ask local counsel to explain how a claim would actually work rather than relying on the reassuring sound of a clause.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.