If you are the owner of a staffing firm considering a sale of your company or a first-time buyer, you may never have heard of Representations and Warranties Insurance (RWI). However, experienced buyers, sellers and M&A professionals know RWI is a frequently used tool for facilitating transactions that can benefit both buyers and sellers.

In every sale of a business, sellers will be required to make specific written statements in the purchase agreement about their businesses (representations) and warrant that those representations are true (warranties). Those representations and warranties usually relate, among other things, to corporate organization, compliance with laws, financial statements and liabilities,customers, contracts, intellectual property, liens, litigation and claims, taxes,employees and benefits. In a typical deal structure, if those representations and warranties are inaccurate, sellers must then indemnify (make whole) buyers for any resulting losses buyers suffer (subject to customarily negotiated survival periods for claims, deductibles, caps and other limitations on recovery).