Meaning
Contractual ownership declarations constitute the formal statements made by selling shareholders asserting that they hold clear, unencumbered ownership of their shares. In an acquisition agreement, title representations ensure that the buyer receives valid ownership free of any pledges or liens. These statements are considered fundamental representations because they go to the core of the transaction.
Breaching these declarations can lead to uncapped indemnity liability.
Verification Process
Board consents and ledger entries are reviewed by legal teams to verify that each seller actually owns the shares being sold. This review confirms that the shares were properly issued and fully paid. Any discrepancies must be corrected before the transaction closes.
This process protects the buyer from competing ownership claims.
Indemnity Exposure
Breaches of these ownership declarations are typically excluded from the standard indemnity caps and survival periods. This exclusion means that the seller remains liable for the full purchase price of the shares if their title is defective. The buyer can seek direct recovery for any losses caused by title defects.
This exposure can be managed by maintaining clean corporate records.
Transaction Security
Ensuring clear ownership allows the transaction to proceed without the risk of future ownership challenges. This security is necessary for any successful corporate exit.
