Contemplating selling your business? Considering entering into a
purchase agreement? Materiality scrape provisions are something you
should be keeping an eye out for.
In many purchase agreements, vendors will make representations
about what they are selling. These include a wide range of
assurances— such as that it has good title to the
assets/shares being sold, that the business hasn't breached any
contracts, and that it isn't involved in ongoing litigation.
These representations form the vital basis of the purchase contract
and ensure buyers know what they are purchasing. Often, the
representations are limited to "material" items. A
representation that says there are no ongoing lawsuits would
actually be that there are no ongoing material lawsuits.
This ensures that for any representation, non-material claims will
not lead to a breach of contract claim by the buyer.
