VC & PE Glossary
What Is Reps and Warranties?
Updated
Definition
Reps and warranties (representations and warranties) are factual statements and promises in a purchase or financing agreement — about cap table, contracts, litigation, IP, and compliance — that if wrong give the other party indemnity or termination rights.
Useful for: Founders, Investors
Reps and warranties are contractual statements that certain facts are true — and promises they remain true through closing — forming the factual backbone of stock purchase, merger, and credit agreements.
How it works
Company reps cover organization, capitalization, material contracts, IP ownership, employee matters, tax, and absence of undisclosed liabilities. Buyers and investors give reciprocal reps on authority and funds. Schedules list exceptions — known litigation, /glossary/related-party-transactions, option grants pending board approval. Breach triggers indemnification claims, often funded from /glossary/escrow holdbacks in M&A.
Venture rounds use shorter rep sets than billion-dollar acquisitions, but cap table and IP reps still matter. /glossary/legal-diligence verifies rep support before signing.
Why it matters
- Founders: Start data room hygiene early; reps are only as safe as underlying records.
- Investors: Reps define what risks were transferred vs retained post-close.
- Counsel: Survival periods and caps negotiate how long sellers remain liable.
Common mistake
Signing broad reps without reading disclosure schedules. “We didn’t know” rarely defeats indemnity if management signed knowingly incomplete schedules.
Related ideas
/glossary/escrow, disclosure schedules, /glossary/legal-diligence, and indemnification.
Related terms
- Legal Diligence — Legal diligence is the buyer's or investor's review of a company's contracts, corporate records, IP ownership, litigation, and compliance — to find issues that could block a deal or reduce value.
Common questions
Short answers for founders, LPs, and operators