Company Sale Disclosure Letter (Share Sale)

This Company Sale Disclosure Letter (Share Sale) is issued by the seller (or the seller’s solicitors) before completion of the sale of the entire issued share capital of a company. It is designed to protect the seller from claims by the buyer under the warranties in the share sale and purchase agreement.

The disclosure letter is closely linked to the warranties. Warranties are statements of fact (and sometimes opinion) which the seller warrants to be true. If a warranty is untrue, the buyer may have a claim for damages, typically measured by the difference between the actual market value of the company and the value it would have had if the warranty were true.

The disclosure process can also assist the buyer by highlighting issues that may not have emerged during due diligence and may prompt renegotiation of price or a request for an indemnity.

What does Company Sale Disclosure Letter (Share Sale) do?

It enables the seller to make disclosures against the warranties in the share sale and purchase agreement so that the disclosed matters qualify the relevant warranties and help manage warranty claim risk.

What does Company Sale Disclosure Letter (Share Sale) cover?

• Introductory wording making clear that disclosures are made for the purposes of the warranties and that specific disclosures qualify the relevant warranties.
• A structure split into General Disclosures and Specific Disclosures.
• Typical general disclosures for share sales, including disclosures relating to the most recent accounts and (where provided) management accounts.
• A general disclosure relating to information filed at Companies House (with scope to limit the disclosure period where appropriate).
• General disclosures relating to property title information and physical inspection where relevant, and intellectual property disclosures (for example patents or registered trade marks) where relevant.
• A specific disclosure format linking each disclosure to the relevant warranty, and the expectation that a disclosure bundle may accompany the letter with supporting documents.

When should you use Company Sale Disclosure Letter (Share Sale)?

• You are selling the entire issued share capital of a company and the share sale and purchase agreement contains warranties given by the seller.
• The seller needs to disclose matters that would otherwise make one or more warranties untrue, or that the warranties require to be disclosed.
• The parties want a structured disclosure process, typically supported by a disclosure bundle of relevant documents.

Background

The disclosure and warranty process can be complex. This explanatory material does not constitute legal advice. If you are not legally qualified, or are unsure about any aspect of the disclosure letter or the procedures connected with it, you should seek the help of a solicitor.

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