Share Price Agreements are significant documents signed by both parties that lay out the information regarding the private purchase and sale of shares in a company and the mechanics of how such a sale would work. Within these agreements, there is a list of promises made by the seller about the information provided regarding the company; these are called warranties.
A breach of warranty occurs when the Seller’s promises are found to be false or inaccurate. This could happen either before the company’s sale or after completion.
Breaches of Warranty Claims could include the seller making a false statement about the company’s financials, such as profits and costs; a company failing to comply with its legal requirements; litigation against the company; and where the company’s IP is not properly owned or licensed.
When dealing with a Warranty Claim, the steps are as follows:
- Check the Share Price Agreement and see if any warranties have been breached.
- Collect all evidence available to show a breach of a warranty. Â This may include financial information, expert evidence and legal documents to support the claim.
- Make sure you follow the process in the share purchase agreement (if there is one) when notifying a claim. The process will probably describe how the notice is to be served: the address of where the notice is to be delivered, the amount of time you have to give notice, how the notice should be served, and any specific information to mention in the notice (most likely involves asking for as much detail of a potential breach as possible)
It is also very important that throughout the process, you have evidence (usually documentation) of the method you used to notify them (email records, pot receipt) and evidence of when you notified them of the claim. Failing to do any of these things may mean the breach of warranty claim could be lost because of an invalid notice.
It is important to understand the deadline for when you make a claim; this is outlined in the Share Purchase Agreement. Usually, there is a limitation period of around 12-18 months; however, this will vary between contracts. It is important to note that if the contracted period is not followed, you will no longer be able to make a claim. If a Share Purchase Agreement does not stipulate a timeframe, then under English Law, a claim for breach of contract (which includes Breach of Warranty) is 6 years by default; however, if signed as a deed, the period will be 12 years.
If you are buying and selling a company and want advice or support on the process of a share sale or purchase or advice on breach of warranty, then please contact Nick Attwell on 01473 229242 or email Nick at nick.attwell@attwells.com.
Our blogs and articles are correct at the time of writing.
These have been created for marketing purposes only and should not be considered as legal advice.
