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Share Purchase Agreement Seller Warranties

The legal consequences of the breach of insurance and the guarantees provided by the agreements differ depending on whether the purchaser has performed due diligence on the legal, economic, fiscal and various aspects of the target company and the shares subject to sale. In this context, Tekinalp believes that if the majority of the shares are transferred to the target company, the seller is liable for material and legal defects and assets deficiencies5. From the buyer`s point of view, the purpose of both documents is to predict the situation of the purchase of the business and, subsequently, it appears that his tax treatment prior to the transactions was wrong. In this case, the company may be held responsible for underpaid taxes, interest (which can be high, especially when a tax audit reveals tax errors made a few years earlier), or even additional penalties. For example, the seller can guarantee that he is not aware of ongoing or ongoing litigation against the company sold. This would be an important guarantee for a buyer. At the time of signing the share purchase agreement, the accounts of the target entity should provide a true overview of the target entity`s business. The sales contract will almost always limit the seller`s liability for the breach of the warranty in any way. If a warranty is found to be false, the purchaser may seek damages for a breach of the warranty in question, which could result in shares below their guaranteed value. In the event that the insurance and guarantees provided in the agreement relate to the qualifications of the companies concerned, not to the shares (due to the fact that shares are the main theme of share purchase contracts), the question of whether these can be considered as specific qualifications („representations and guarantees“) under Article 219/1 tCO is controversial4. Compensation is intended to create the risk of liability of the seller only.

Unlike warranties, the buyer is not required to prove that the liability of the business has reduced the value of the business. In the event that the seller is responsible for defects, the buyer has the following rights: This guarantee confirms that the seller is the sole and true owner of the shares sold. For this reason, guarantees are an essential protection for the buyer and are generally the subject of intense negotiations between lawyers from both parties in an attempt to obtain a fair position for the buyer and seller. If you sell shares in a private company, the buyer will almost always look for guarantees. In this context, a guarantee is a promise you make on what you sell. Buz assumes that the sale of shares is essentially the sale of a right, not for property, and only if all or almost all of a company`s shares are sold, such a sale may be linked to a transfer of a business. Buz points out that, in such a case, the defects of such a company are considered to be defects of the shares and that the seller is responsible for those defects.6 A share purchase agreement (SPA) is the key document of a share sale and defines the terms of the deal. It contains the provisions determining the agreement and all the guarantees. The target company should not be involved in disputes with the relevant tax authorities at the time of the share purchase agreement. Representations seem to be very similar to guarantees in a sales contract, but there are significant differences; a breach of the warranty described above gives rise to a contractual right, while a violation of representation results in a claim under the law of misrepresentation.

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