13th February 2025
When it comes to share or asset sales, the disclosure letter is a crucial document in the transaction process.
In this blog post, we will delve into what a disclosure letter is and what it covers. Jen Goodwin, at Myers & Co, explores what you need to know about disclosure letters.
A disclosure letter is a legal document prepared by the seller’s solicitors and provided to the buyer and their legal team. It accompanies the Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA) and serves to disclose any issues or liabilities that could affect the transaction.
The primary purpose of the disclosure letter is to qualify the warranties given by the seller in the SPA or APA, thereby limiting the seller’s liability for any breach of those warranties.
There are several components which make up a disclosure letter. A well-prepared disclosure letter not only protects the seller by qualifying the warranties given in the SPA but also provides the buyer with a clear picture of any potential risks or liabilities.
Here’s an overview of the main sections you need to know about:
The letter usually begins with an introduction, outlining the purpose of the document and providing some background information about the transaction. This section sets the stage for the detailed disclosures that follow, helping both parties understand the context and the relevance of the information being shared.
This section includes general statements that apply to all warranties. It might cover broad issues such as compliance with laws, the accuracy of financial statements, and the absence of litigation.
Here, the seller provides detailed information about specific warranties. For example, if the seller warrants that there are no ongoing legal disputes, this section would disclose any exceptions to that warranty, such as pending legal actions or regulatory investigations.
The disclosure letter often includes attachments and schedules that provide additional details or supporting documentation. These might include copies of contracts, financial statements, or correspondence related to disclosed issues.
The letter concludes with signatures from the seller and the buyer, acknowledging that the buyer has received and reviewed the disclosures.
The disclosure letter is vital for several reasons:
The disclosure letter is an important document in the sale process. It ensures transparency, protects both parties from legal issues, and helps facilitate a successful transaction.
At Myers & Co, we are committed to helping our clients navigate the share sale process effectively. By understanding what goes into a disclosure letter and its importance, both buyers and sellers can proceed with confidence.
For further information, please contact, Jen Goodwin, at Myers & Co on 01782 491025 or email jen.goodwin@myerssolicitors.co.uk. Myers & Co has an office in Stoke-on-Trent, Staffordshire.
