What is the relationship between warranties and indemnities in a share sale?

What is the relationship between warranties and indemnities in a share sale?

• A. Warranties confirm quality; indemnities cover damages
• B. Warranties replace indemnities
• C. Indemnities replace warranties
• D. There is no relationship between them

Answer: (A)

Warranties are statements about the target’s condition and operations at signing—claims about facts like ownership, compliance, financials, and liabilities. If those statements turn out not to be true, the buyer can seek damages for breach of warranty. Indemnities are separate promises to compensate for losses tied to specific, defined events or items, such as a known tax issue or a particular litigation risk, and they often provide a direct remedy for those particular exposures, sometimes with their own survival periods and caps. These protections work side by side rather than one replacing the other. Warranties cover broad representations about the business, while indemnities allocate specific risks and provide targeted remedies. That’s why describing warranties as confirming quality and indemnities as covering damages best captures their distinct roles.

Warranties are statements about the target’s condition and operations at signing—claims about facts like ownership, compliance, financials, and liabilities. If those statements turn out not to be true, the buyer can seek damages for breach of warranty. Indemnities are separate promises to compensate for losses tied to specific, defined events or items, such as a known tax issue or a particular litigation risk, and they often provide a direct remedy for those particular exposures, sometimes with their own survival periods and caps.

These protections work side by side rather than one replacing the other. Warranties cover broad representations about the business, while indemnities allocate specific risks and provide targeted remedies. That’s why describing warranties as confirming quality and indemnities as covering damages best captures their distinct roles.