| Commentary

121 Tax warranties

| Commentary

121 Tax warranties

The share sale agreement will contain extensive tax warranties. Like other warranties, the function of tax warranties is twofold, namely:

  1. 121.1

        to elicit information relating to the target company’s tax affairs, by requiring disclosure against warranties which are not correct—and which will be contained in the disclosure letter1; and

  2. 121.2

        to impose liability for breach of any tax warranty, which is not covered by the tax indemnity.

Tax warranties should be expressed in the positive, not the negative, so that the sellers can reply that the warranty in question is not correct. Bad drafting will

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