Legal Due Diligence · glossary
Fundamental warranties are the seller's most basic promises in a share sale: it owns the shares, free of other people's rights, and it has the power to sell them. If they are untrue, the buyer has not got what it paid for. So they usually sit outside the general cap and have a longer time limit than other warranties.
The seller's promises about title and capacity: it owns the shares, free from encumbrances, and has power to sell them. If they fail, the buyer has bought nothing. So they usually sit outside the cap, and they are repeated at completion. Chapter 6
Explained in Chapter 6, Corporate and Title, of Legal Due Diligence.
Also explained in M&A Foundations.
Title findings land in two standard places in the SPA. The first is the fundamental warranties, the seller's promises about title and capacity. In the Sunrise SPA, Meridian promises that it is validly incorporated with power to do the deal. It also promises that it is the “sole legal and beneficial owner of the Shares, free from all Encumbrances” (Schedule 3, paragraph 1).Read Chapter 6, Corporate and Title →
Chapter 1 and this glossary are open to everyone; the whole edition is free to read with a free account until 31 January, and it stays open to an account opened by then.Chapter 1 of Legal Due Diligence and this glossary are free to read; the rest of the edition is in the Library, at €12 a month or €79 for a Year Pass.
Usually the title and capacity warranties: the seller owns the shares outright, the company was properly formed, and the seller has authority to sign. Some deals add the company's share capital. Due diligence on title checks the facts behind them.
They are usually left out of the low caps and short time limits that apply to the business warranties. Many buyers also ask for them to be repeated at completion.
Related terms
Where this term lives
This term is part of one complete fictional deal, with every document attached and a test after every chapter. Open Legal Due Diligence → · All terms A–Z →