What a share purchase agreement leaves to the disclosure letter
The warranties in a share purchase agreement are only as useful as the disclosure that qualifies them. How sellers and buyers should treat the letter that nobody wants to write.
Helen Ashford
· 6 min read
Ask a buyer which part of a share purchase agreement matters most and you will hear about price. Ask a seller and you will hear about warranties. Both are describing the same document from opposite ends, and the place where they meet is one that gets surprisingly little attention: the disclosure letter.
What the letter does
Warranties are statements of fact the seller gives about the business: its accounts are accurate, its contracts are in force, no one has threatened to sue. A warranty that turns out to be false gives the buyer a claim. The disclosure letter is where the seller says, in effect, “except for these things.” Anything fairly disclosed against a warranty usually cannot found a claim.
That makes the letter the seller’s real protection, and the buyer’s real map of the risks.
Three habits that serve sellers
Start early. Collecting the facts for disclosure takes longer than negotiating the warranties. Begin when the first draft arrives, not a week before signing.
Be specific. A general disclosure of “all documents in the data room” is rarely accepted in full and invites argument. A disclosure that names the document, the clause and the issue is harder to challenge.
Let the warranties shrink. Every warranty you cannot comfortably give is better narrowed in the agreement than hidden behind a long disclosure. Ask yourself of each one: could I defend this in front of a judge?
Three habits that serve buyers
Read the letter as a to-do list. Each disclosed item is a question for diligence or a candidate for a price adjustment or a specific indemnity.
Resist general disclosures. Where a seller attempts to disclose the entire data room, agree specific limits, or insist the disclosure be fair and specific.
Connect the letter to the price. If a disclosed risk matters, either the price moves, a retention covers it, or an indemnity does. Leaving it as a warranty qualified by disclosure means leaving it with no remedy at all.
The honest middle
Most disputes after a sale begin with a mismatch of expectations: a seller who thought a point was known, a buyer who thought it was warranted. A short call to walk through the disclosure letter line by line, a week before signing, resolves more of these than any clause.
This note is general information for business readers, not legal advice. Rules vary by jurisdiction and facts.