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What Promises Should You Get from the Seller in an AS IS Sale?

The more you pay for something, the more you expect it to be of high quality. And you expect the seller to stand behind that quality.

That's not necessarily the case when you buy a business, even though you will be paying a lot of money for it. So you need to ask the seller to make certain promises in the purchase agreement. Attorneys call these promises "representations and warranties" -- or, if you want to be cool, "reps and warranties."

The seller of a business probably will want to sell the business "AS IS." Those two little words have a big impact because they have a tremendous amount of legal significance. They mean that the seller is making no promises; the buyer will be taking all the risk.

Most small business deals are AS IS. But even then, a buyer should try to get the seller to make the following limited reps and warranties in the purchase agreement:

  • The seller has good title to the assets

  • There are no liens on the assets, or, if there are, the liens will be paid off and released at closing

  • No one is suing the business or making any claims against the assets

  • The seller has paid its taxes (income, payroll, sales, etc.)

  • The seller has paid wages and benefits to its employees

  • The seller hasn't breached any of its contracts, including its lease

  • The seller has operated the business in compliance with law

  • The seller has provided the buyer with true information for due diligence purposes

It might be a red flag if the seller can't make these promises when all other aspects of the deal will be AS IS.


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