01 Jun 2026
By Findlay Anderson, Partner, and Head of Corporate, Gilson Gray
In private company acquisitions, warranties are one of the most heavily negotiated parts of a share purchase agreement (SPA). Sellers often see them as a long list of legal statements. Buyers, on the other hand, view them as an important tool for understanding risk, allocating responsibility and protecting value after completion.
While warranty schedules can be extensive, experienced buyers are rarely interested in negotiating every clause with equal intensity. Their focus is usually on the warranties that reveal genuine commercial risk.
What are warranties in an SPA?
Warranties are contractual statements made by the seller about the target company and its business at the point of sale.
They commonly cover areas such as:
If a warranty proves to be untrue and the buyer suffers loss as a result, the buyer may have a claim against the seller, subject to the terms of the SPA.
Warranties, therefore, serve two key purposes:
1. Accuracy of financial information
For most buyers, financial risk is a primary concern.
Buyers want confidence that the company’s accounts fairly reflect the business and that there are no hidden liabilities, unusual accounting treatments or unexplained adjustments.
Particular focus is often placed on the quality of earnings, levels of debt, working capital position of the company, aged debtor recoverability, contingent liabilities and off-balance sheet commitments.
Where financial information is unclear or inconsistent, warranty protection becomes significantly more important.
2. Undisclosed liabilities
Buyers are typically concerned with what they cannot see.
A business may appear attractive based on headline figures, but hidden liabilities can materially affect value after completion. This might include historic claims, warranty obligations to customers, unpaid taxes, unresolved supplier disputes, environmental or regulatory exposure and/or commitments under informal arrangements.
Warranties help flush out these issues during due diligence and allocate responsibility if they later arise.
3. Key contracts and customer relationships
Many private companies depend heavily on a relatively small number of customers, suppliers or commercial agreements.
Buyers will usually want reassurance that the major contracts are valid and enforceable, no key customer has indicated an intention to leave, there are no material breaches or termination risks, change of control provisions have been identified, and critical suppliers of the company will remain stable.
If revenue depends on a handful of relationships, warranties in this area can be especially important.
4. Tax exposure
Tax warranties and tax covenants are often a central protection for buyers.
Historic tax liabilities can surface after completion, even where they were not obvious during due diligence.
Buyers commonly focus on whether returns have been properly filed, whether taxes have been paid when due, whether there are any ongoing or anticipated HMRC enquiries, whether all payroll and VAT processes have been handled correctly and/or whether aggressive tax positions have been taken.
Unexpected tax liabilities can quickly erode deal value, so this area receives close attention.
5. Litigation and disputes
Ongoing or threatened disputes can create both financial cost and management distraction.
Buyers will usually care about:
Even where claims appear manageable, buyers will want a clear picture of the risk.
6. Intellectual property and ownership of key assets
For many businesses, value sits in assets that are not immediately visible.
That may include software, brands, trademarks, proprietary processes, databases, domain names and any confidential know-how.
Buyers often focus on whether the company genuinely owns and controls the assets central to its business, particularly in technology, creative and growth sectors.
7. Management and employee risk
Where a business depends heavily on key individuals, people-related warranties can be commercially significant.
Buyers may focus on enforceable employment contracts, bonus/commission liabilities, key employee retention risks, restrictive covenants, ongoing grievances/disputes and pension obligations.
A profitable business can look very different if the senior team walks out shortly after completion.
What buyers usually care less about
Not every warranty attracts the same scrutiny.
Buyers are often less concerned with technical or low-risk points that have limited commercial impact. Their advisers may still review them carefully, but negotiation time is usually concentrated on areas that affect value, integration or post-completion risk.
The most sophisticated buyers tend to focus on material issues rather than negotiating for the sake of volume.
Why disclosure matters
A well-run disclosure exercise is often just as important as the warranties themselves.
Where sellers clearly disclose known issues against the warranties, the parties can address them openly through:
Good disclosure can reduce friction and help keep transactions moving.
Final thoughts
Warranties are not simply boilerplate legal drafting. They are a practical risk-management tool and a key part of how buyers assess the quality of a deal.
In most transactions, buyers care less about having the longest warranty schedule and more about obtaining clear protection in the areas that genuinely matter: financial performance, hidden liabilities, key relationships, tax exposure and operational continuity.
For sellers, understanding that commercial focus can make negotiations more efficient and help achieve a smoother path to completion.
