All share purchase agreements (“SPAs”) will contain warranties and indemnities covering a range of aspects of the target’s business. They also feature in asset purchase transactions.

Warranties are assurances given by the sellers to the buyers in a transaction which, if later found to be untrue or inaccurate, can give rise to a claim in damages against the sellers, subject to any limitations. Warranties are given in a wide variety of circumstances, but commonly cover the following areas of the target:
<ul>
 	<li>Accounts and accounting standards;</li>
 	<li>Corporate records and commercial contracts;</li>
 	<li>Real estate;</li>
 	<li>Employees;</li>
 	<li>Tax; and</li>
 	<li>Compliance with laws (in particular data protection, health and safety and anti-bribery), litigation and disputes.</li>
</ul>
Indemnities are promises by the sellers to reimburse the buyers of the cost of a certain risk if it crystalises. One example is where the sellers have disclosed a risk of litigation, the buyers will inevitably ask to be indemnified against the cost of defending that litigation and any damages which may follow. Indemnities more commonly relate to specific risks which have been identified during the due diligence process.

Sellers will want to give as few warranties and indemnities as possible to limit their exposure. Conversely, buyers will ask for as many as possible to maximise their opportunities to recover their losses if something goes wrong in the transaction. Ultimately, a compromise must be reached between the parties, often influenced by any differences in bargaining power.

Sellers have a number of options available to negate the effect of any warranties or indemnities given: (1) disclosing any exceptions in advance; (2) limiting their liability in the SPA; or (3) arranging W&amp;I insurance to cover a breach.