Representations and Warranties
Statements of fact made by one party (typically the seller) to another (typically the buyer) in a transaction agreement, covering the condition of the target business. The central risk-allocation mechanism in any M&A transaction.
Representations and warranties are statements of fact made by one party (typically the seller) to another (typically the buyer) in a transaction agreement, covering the condition of the target business, its corporate organization, ownership of assets, financial statements, contracts, intellectual property, compliance with laws, litigation, employment, tax, and other material matters. A "representation" is technically a statement of present or past fact; a "warranty" is a promise that the fact is true. In Texas M&A practice the terms are used interchangeably.
Structure: general vs. fundamental
Most M&A agreements distinguish between general reps (financial statements, contracts, IP, compliance, litigation) and fundamental reps (organization, capitalization, authority, ownership of equity, no broker fees). Fundamental reps typically have longer survival periods (often through the statute of limitations or perpetually) and higher (or no) indemnification caps; general reps typically survive 12–24 months and are subject to standard indemnification caps.
Survival and limitation of liability
Most agreements expressly provide that reps and warranties survive closing for a specified period, typically 12 to 24 months for general reps, longer or perpetual for fundamental reps and specific tax reps. The survival period operates as a contractual statute of limitations: claims must be brought within the survival period or are barred. Post-2020 RWI practice has lengthened typical RWI policy periods to three years for general reps, often longer than the seller's contractual liability period.
Reliance and sandbagging
Whether a buyer must demonstrate reliance on a rep to recover for breach is contested under Texas law. See Sandbagging. Pro-sandbagging clauses (buyer-favorable) and anti-sandbagging clauses (seller-favorable) are increasingly common to remove the question from the default rule.
RWI market context
As of 2025, RWI is used in approximately 75% of private-equity transactions and 60%+ of larger strategic acquisitions. Premium rates are historically low (2.5%–3% of policy limit), with retentions as low as 0.5% of enterprise value. Increased competition has produced buyer-favorable terms, though tariff uncertainty and slow 2025 deal volume have produced mixed market conditions.
Reps and warranties are the central risk-allocation mechanism in any M&A transaction. They identify what the buyer is paying for; they trigger indemnification when wrong; and they determine the parties' post-closing liability landscape. Disclosure schedules paired with the reps modify the reps with specific exceptions.
Companion article: Selling Your Business in Texas