Due diligence can never uncover everything. Warranties and indemnities are the contractual promises that give buyers a remedy when something the seller said turns out to be wrong, and in ecommerce deals they need to address risks standard templates miss.
What is a warranty?
A warranty is a statement of fact by the seller about the business, such as "the financial statements are accurate" or "the business owns all trademarks it uses". If a warranty is untrue and the buyer suffers loss, the buyer may claim damages.
What is an indemnity?
An indemnity is a promise to reimburse the buyer for a specific type of loss, pound for pound or dollar for dollar, regardless of whether the business's value was affected. Indemnities are best used for known risks, such as a sales tax exposure found in diligence.
Warranties that matter most in ecommerce
Beyond standard warranties, ecommerce buyers should seek warranties on revenue and traffic data, platform account standing and policy history, IP ownership and non-infringement, product compliance, data protection and consent for marketing lists, indirect tax registrations and payments, and the absence of fake reviews or manipulated metrics.
Limitations the seller will ask for
Sellers typically ask to cap total liability (often at or below the price), set a minimum claim size, limit the time for bringing claims (commonly 12 to 24 months for general warranties, longer for tax) and exclude matters disclosed during diligence. These limits are negotiable and should reflect the risk profile of the business.
Making claims recoverable
A warranty is only as good as your ability to recover. Escrow, holdbacks, deferred payments with set-off rights and, in larger deals, warranty and indemnity insurance all make recovery practical, especially when the seller lives in another country.
Disclosure
Sellers usually disclose known exceptions against the warranties in a disclosure letter or schedule. Buyers should review it carefully, as anything fairly disclosed usually cannot be claimed for later, and may need to be addressed through price or a specific indemnity instead.
This guide is general information, not legal advice for your situation. Speak to us about your specific acquisition.