Representations and Warranties
Also known as: Reps and Warranties, R&W, RWI
Representations and warranties are the seller’s formal statements of fact about the business in a purchase agreement, with breaches giving the buyer a claim for damages.
Representations and warranties are the statements a seller makes in a purchase agreement asserting facts about the business: that the financials are accurate, the contracts are valid, taxes are paid, and there is no undisclosed litigation, among many others.
Why they carry weight
They allocate risk. If a representation later proves false and the buyer suffers a loss, the buyer can make an indemnity claim, typically first against the escrow. The accuracy of the financial representations is exactly what quality of earnings diligence is designed to test.
R&W insurance
On many deals, representations and warranties insurance (RWI) now covers breaches instead of a large escrow. It lets sellers walk away cleaner and gives buyers a well-capitalized party to claim against, which has reshaped how risk is handled in the middle market.