What Are Representations and Warranties?

Why It Matters

In many business transactions — mergers, acquisitions, financing deals, and even some commercial contracts — one party is relying on facts stated by the other party that can't easily be independently verified in full. Representations and warranties are the mechanism by which those facts get formally stated, and by which risk gets allocated if they turn out to be untrue.

For buyers, investors, and business partners, these provisions often work hand-in-hand with due diligence: due diligence is the investigative process of confirming facts independently, while representations and warranties provide a contractual backstop for facts that could not be fully verified or that the other party specifically agreed to stand behind.

How It Works

A representation is generally understood as a statement of fact, made as of the time the contract is signed (or another specified date), on which the other party is entitled to rely. If a representation turns out to have been false when made, the other party may have remedies such as the right to damages or, in some cases, to unwind the transaction.

A warranty is often framed as a contractual promise about a fact, sometimes extending into the future. In practice, many contracts combine the two ('represents and warrants') and treat them together, though some legal systems and specific contract types draw sharper distinctions between them, including different available remedies for a breach.

These provisions are frequently the subject of negotiation over 'materiality' and 'knowledge' qualifiers — for example, whether a representation is stated as true 'to the best of the seller's knowledge,' which can significantly limit its practical protection compared to an unqualified statement.

Key Elements

Common categories of representations and warranties in business transactions generally include the following, though the exact list depends heavily on the type of deal.

• Corporate existence and authority to enter the agreement
• Ownership of assets or intellectual property being transferred or licensed
• Financial statements and their accuracy
• Compliance with applicable laws and absence of undisclosed litigation
• No conflicts with other existing agreements or obligations

A Business Example

Example: In a business acquisition agreement, the seller represents and warrants that the company's financial statements are accurate and that there is no undisclosed pending litigation. If, after closing, the buyer discovers a significant lawsuit that existed before the deal but was never disclosed, the buyer may be able to pursue a remedy under the breached representation, depending on how the contract defines damages, survival periods, and any applicable caps.