What is Inventory? In this section, the Seller provides information regarding the inventory of the Business. It is part of the Representations and Warranties of the Seller section.

The Representations and Warranties of Seller portion of the Agreement is used to save the Buyer time and money. Rather than require the Buyer to go through third parties to find certain information, the Seller provides the information and must reimburse the Buyer for any Losses it suffers if the information is false or misleading.

The Middle Ground: The Seller represents that the inventory held by the Business is consistent with the Business’s past practices, in terms of both quality and quantity. The Seller also represents that the inventory does not have any Encumbrances that would prevent its sale.

Purpose: Inventory is another area that drives some companies but is utterly irrelevant for others. If inventory is a necessity it will receive significant attention during the due diligence process. Buyers want to know everything about it: how much there is, how often it comes in and goes out, how is it accounted for, etc. On the other end of the spectrum, inventory is a non-issue on which neither side will spend much time or money.

Buyer Preference: The Buyer wants this representation included if inventory is an essential part of the Business, and it wants to be specific about the representation to ensure that the inventory referred to is sufficient to satisfy customer needs and expectations.

Seller Preference: The Seller likely wants to exclude this representation entirely. Since inventory is an item listed on the balance sheet, the Seller may argue that the issue is adequately covered by the financial statement representations contained elsewhere in the Agreement.

Differences in a Stock Sale Transaction Structure: None.