Organization of Buyer
What is This? In this section, the Buyer provides information regarding its current legal status. It is part of the Representations and Warranties of Buyer section.
The Representations and Warranties of Buyer portion of the Agreement is used to save the Seller time and money. Rather than require the Seller to go through third parties to find certain information, the Buyer provides the information and must reimburse the Seller for any Losses it suffers if the information is false or misleading.
The Middle Ground: The Buyer represents that its entity was legally organized and is in good standing under the laws of its state of organization.
Purpose: As a practical matter, the main concern of most sellers involved in a transaction is whether they will receive their payment in accordance with the terms of the Agreement. Whether the Buyer’s company was correctly organized and maintains good standing is only of consequence to the Seller if the deal is structured as a merger or a stock for stock acquisition, or if the Seller plans on continuing to work for the Business after the transaction. If the Buyer is setting up a new entity as an investment vehicle to complete the transaction or is paying the entire Purchase Price in cash at Closing, the most pragmatic of sellers will not give a second thought to whether the Buyer’s company was created properly. However, if the Seller’s payment depends in part on the success of the Buyer’s business, the Seller will want to ensure that the entity validly exists and is not in jeopardy of losing its “good standing” status.
Buyer Preference: None, this is a standard representation.
Seller Preference: None, this is a standard representation.
Differences in a Stock Sale Transaction Structure: The content of the representation will not change based on the transaction structure, but its importance will vary based on the payment structure of the transaction.
