During the due diligence process, issues may be identified by the buyer or seller that will require disclosure against specific or general warranties within the SPA. The disclosure letter plays several different roles in a transaction, it:

1. Qualifies the warranties given by the seller in the SPA and discloses exceptions to the warranties that would otherwise constitute a breach.
2. Allocates risk to the buyer by disclosing known issues, preventing warranty claims where the seller has already disclosed these. It is not uncommon however for known issues to be resolved pre- or as part of the transaction by agreement between the buyer and seller.
3. Protects the seller’s liability where items are fair and sufficiently detailed.
4. Provides transparency to the buyer and supports the due diligence findings.

Other ancillary documents for a transaction may include Loan Notes for part of the consideration, or Service Agreements for directors and/or sellers remaining in the business post-sale. Service agreements can be particularly important if any sellers are remaining in the business as employees, and part of the consideration includes an earn-out.