Q&As

What are the standards of disclosure seen in a share purchase agreement and asset purchase agreement?

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Published on LexisPSL on 25/04/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • What are the standards of disclosure seen in a share purchase agreement and asset purchase agreement?

A disclosure exercise will be carried out by the seller in connection with the acquisition of shares in a target company or the acquisition of the assets of a business. The seller will give warranties to the buyer in the share purchase agreement (SPA) or asset purchase agreement (APA), as appropriate. Should the warranty be untrue, this will give rise to a breach of warranty claim entitling the buyer to an action for damages against the seller. The principal method for the seller to limit is liability for breach of warranty (in addition to agreeing specific limitations in the SPA or APA) is by making disclosures against the warranties in the disclosure letter. For further information, see Practice Note: Disclosure—share and asset purchases. For a Precedent disclosure letter, see: Disclosure letter—private M&A—share purchase and Disclosure letter—asset purchase.

While the buyer will, as a general principle, allow disclosures against most warranties, it will wish to restrict the seller from making disclosures against certain warranties fundamental to the transaction, such as those relating to the capacity of the seller and the seller's title to the sale shares.

The buyer and the seller will need to agree a standard of disclosure (such provision being included in the SPA or APA (as appropriate) or, occasionally, the disclosure letter). The agreed standard of disclosure will vary from transaction to transaction, with

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