Why this disclosure letter? To understand the purpose of this document, one must recall the importance of the representations and warranties agreement (or indemnity agreement), which lies at the heart of the business transfer process. The buyer, who is about to pay the purchase price, wants to limit the risk of unpleasant surprises when they do not yet fully know the target company. They therefore ask the seller to cover their own management up to the date of the share transfer. Here are a few typical warranties that can be found: the free transferability of the shares sold, compliance with regulations, proper maintenance of company registers, the absence of litigation, the reality of the various asset line items, the absence of undisclosed liabilities, etc.
For the seller, this is nevertheless a painful and tedious exercise. It is not uncommon for these warranties to run to several dozen pages, and for certain representations to seem inapplicable or completely theoretical for the specific case at hand. Having undergone an audit—an already intrusive process—the seller struggles to understand why the agreement contains a clause stating that their liability shall in no way be exonerated by the performance of said audit. It is somewhat like using both a belt and suspenders to hold up one's pants.
In this specific context, the disclosure letter is a useful instrument to nevertheless limit the triggering of the representations and warranties.
What form does this document take? Generally, it is a letter written and signed by the seller for the attention of the buyer. This document is dated the same day as the purchase agreement and refers to it. In simpler agreements, the disclosure can also be made directly within the text of the representations and warranties.
What must the disclosure letter contain? The first part contains general disclosures that the buyer should have known, such as the exclusion of liability for any publicly available information (the Crossroads Bank for Enterprises, the Belgian Official Gazette, filed financial statements, etc.). Next come the specific disclosures regarding the company. Exceptions to the representations in the warranties are listed, often in table form. These specific disclosures can cover all areas of the business: the list of major clients and suppliers, commercial contracts, staff remuneration and benefits, ongoing litigation, etc. It very often involves explicitly reiterating certain elements from the data room used during the audit. The disclosure letter therefore always includes numerous annexes. When these are too voluminous, they can be placed on a CD-ROM (or digital medium), which will be signed by the parties.
What are the stakes involved? Items that have been disclosed in this manner cannot subsequently be invoked by the buyer under the warranty claim. The seller therefore has every interest in being thorough. It is easy to see that the content of this letter is also subject to negotiations, in which lawyers play an important role.
While the official purpose of the disclosure letter is to fully inform the buyer, in reality it is primarily the seller who is concerned. This meticulous and sometimes tedious work, occurring at the very end of the sale process, must not be botched. Indeed, while the purchase agreement often contains strict and rigid clauses—especially when the buyer imposes their standard contract—the disclosure letter provides the exact means to respond by explicitly capturing the company's specific details, thereby demonstrating that the buyer is purchasing with full knowledge of the facts.
Article initially published in La Libre Économique by Tanguy della Faille, partner at Fondaris, on 19/12/2025. Published/updated version on the Fondaris website with the author's permission.
