Reps & Warranties: Organization, Qualification, and Authority of Seller
Essential Question:
Is the seller qualified to sell?
In Brief:
Several clauses around ownership, organization, and equity that ensure that the Seller is able to hold up their end of the deal.
Category: Continued Diligence & Fact-Finding
What is it?
An outline of the organization and qualification of seller entities involved, their authority to complete the transaction, and, in the case of an equity deal, their unencumbered title to that equity, ensuring that the organization is able to continue to do business in the same way and the same place as they have been and that they’re able to complete the transaction.
When does it matter?
This rep is fundamental to the deal. Will the business be able to continue operating in the same way and in the same place as before? Are the sellers entitled to enter into the transaction and assert that everything in these documents is binding on me and has the force of law? Is there any other equity haunting the capitalization of the company?
What to look out for?
The structures underlying transactions have become more and more complicated. There may need to be some type of reorg before the transaction to produce different beneficial outcomes upon transaction; these reorgs make the capitalization representations much more complicated – you have to document the original state, the changes, and the outcomes.
