Meaning
Formal assertions within a purchase agreement specify the exact ownership structure of a corporation at a fixed moment in time. These capitalization representations detail the number of issued shares, the identity of every stockholder and the existence of any warrants or convertible notes. Accuracy here prevents future claims that an undisclosed party holds a right to equity or proceeds from a sale.
Ownership Warranty
Contracts typically require a seller to guarantee that no other agreements for the issuance of stock exist. If capitalization representations are found to be inaccurate after a closing, the buyer often seeks a reduction in the purchase price or damages. This warranty acts as a primary tool for allocating the risk of missing records between the parties.
Dilution Protection
Investors rely on the accuracy of these figures to calculate their percentage of control and their share of future distributions. Because capitalization representations define the denominator for all per share calculations, a single missing option grant can shift the entire financial outcome for existing holders. The document acts as the definitive source when old emails suggest different ownership percentages than those recorded in the formal stock book.
Every entry in the table must correspond to a specific board consent or a signed subscription agreement found in the corporate minute book. If a founder promised equity to an early employee but failed to execute the paperwork, these representations force the issue into the open before the money changes hands.
Verifiable Record
Corporate minutes and stock transfer logs provide the physical proof required to support these assertions. While memory of an early promise might persist, capitalization representations only acknowledge rights that have been properly documented and authorized by the board of directors. The cost of correcting a discrepancy late in a transaction often includes legal fees and the delay of the entire exit process.
