Representations and warranties are factual statements a company makes in a financing or acquisition agreement, about its finances, legal standing, IP ownership, and more, that the other party is relying on when deciding to invest or buy.
A representation that turns out to be false, even unintentionally, like a cap table that doesn't actually reflect who owns what, can trigger indemnification obligations or, in serious cases, let the other party unwind the deal entirely. Exactly why the diligence process exists: to verify these statements before money changes hands rather than after.
The scope of what gets represented and warranted is usually one of the most negotiated parts of a deal, since a company wants to make narrow, accurate statements it can stand behind, and the other side wants broad coverage that shifts more risk onto the seller. Getting the underlying facts right, clean books, a clean cap table, assigned IP, before making these statements is what actually protects a founder here, not clever drafting.
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