What are warranties in an investment agreement?
By SuLe · Updated 20 June 2026
Warranties are statements of fact about your company set out in the investment agreement — that the shares are properly issued, the accounts are accurate, the IP is owned, and so on. They are usually given by the company and sometimes by founders personally. If a warranty is untrue and the matter was not disclosed, the investor can claim damages for breach of contract.
Key facts
- Warranties are contractual statements of fact about the company's shares, accounts, IP, contracts, litigation, employment and data.
- They are given in the investment agreement, usually by the company and sometimes by founders personally.
- If a warranty is untrue and undisclosed, the investor can claim damages for breach of contract.
- The disclosure letter is your defence: a fact fairly disclosed cannot found a warranty claim.
- Warranty liability is commonly limited by negotiation — through caps, time limits and thresholds — none of which are set by statute.
What do warranties actually cover?
Warranties are promises about the true state of the company, written into the subscription (investment) agreement. Each one is a factual statement the investor is relying on: that the company owns its intellectual property, that the accounts are accurate, that there is no undisclosed litigation.
The schedule is usually long, running across shares and capital structure, accounts, IP, material contracts, employment, tax and data protection. That breadth is deliberate — the investor is buying on the strength of these statements.
Because they mirror the due diligence checklist, warranties and diligence cover much the same ground from opposite directions. Diligence is the investor looking; warranties are you promising in writing that what they see is the whole picture.
What happens if a warranty is untrue?
If a warranty is untrue and the matter was not fairly disclosed, the investor can claim damages for breach of contract. Broadly, that means the difference between what the shares were worth as warranted and their actual value given the truth.
This is why warranties carry real weight. A single inaccurate statement — that all contractors assigned their IP, when one did not — can turn into a live claim months after completion.
The claim is a contract claim, so ordinary contract principles apply: the investor generally has to show the warranty was breached and that they suffered loss as a result. The practical protections you negotiate around that liability matter as much as the warranties themselves.
How do I protect myself against warranty claims?
Your first and best protection is the disclosure letter. A fact fairly disclosed against a warranty cannot found a claim on that matter — so genuine, specific disclosure neutralises the risk of anything you already know about.
Beyond disclosure, warranty liability is commonly limited by negotiation. Investment agreements typically include a financial cap on total warranty liability, a time limit for bringing claims, and a threshold below which small claims cannot be made.
These limits are market-negotiated, not fixed by law, and they are where founder-side effort pays off — especially where founders give warranties personally, which can put their own assets, not just the company's, on the line.
| Feature | What it means for founders |
|---|---|
| Given by the company | Claims are met from company assets |
| Given by founders personally | Claims can reach founders' own assets |
| Qualified by disclosure letter | Disclosed matters cannot found a claim |
| Financial cap | Maximum total liability (negotiated) |
| Time limit | Deadline for the investor to bring a claim (negotiated) |
| De minimis threshold | Small claims below a floor are excluded (negotiated) |
Worked example
Ravi and Elena raise a £500,000 seed for Cadence Robotics Ltd. The investment agreement asks them to warrant that the company owns all IP in its control software. Ravi knows an early intern wrote part of an early module without a signed assignment.
Instead of staying quiet, they disclose the intern point in the disclosure letter and arrange a retrospective assignment before completion. Because the matter is fairly disclosed, it cannot found a warranty claim. Had they left it undisclosed and the investor later discovered a gap in ownership of the core product, the warranty on IP would have been breached — a claim measured by how much less the shares were truly worth.
Where founders go wrong
Signing warranties without reading them
— each one is a factual promise you are personally staking the deal on; skimming the schedule is how avoidable claims start.Relying on the cap instead of the disclosure letter
— the cap limits how much you can lose, but a good disclosure letter stops the claim arising at all.Giving broad personal warranties unquestioned
— personal warranties can reach your own assets; negotiate their scope and a cap before agreeing.Disclosing vaguely
— "there may be some IP issues" is not fair disclosure; specific, documented disclosure is what defeats a claim.
Related questions
Who gives the warranties — the company or the founders?
Usually the company, and sometimes the founders personally as well. Personal founder warranties raise the stakes, because a successful claim can reach your own assets rather than just the company's. How far personal warranties go, and any cap on them, is one of the most important things to negotiate before signing.
What happens if a warranty turns out to be untrue?
If a warranty is untrue and the matter was not fairly disclosed, the investor can claim damages for breach of contract — broadly, the difference between what the shares were worth as warranted and their true value. If the matter was disclosed in the disclosure letter, the claim usually cannot get off the ground. [More: What happens if we breach an investment warranty?]
Can I limit my exposure under the warranties?
Yes. Warranty liability is commonly limited by negotiation — through the disclosure letter, financial caps, time limits for bringing claims and thresholds below which no claim can be made. These limits are heavily negotiated and are one of the main reasons to have a solicitor review the investment agreement.
What areas do warranties usually cover?
Typically the shares and capital structure, the accounts, intellectual property, material contracts, litigation, employment and data protection. The list mirrors what investors examine in due diligence, so a warranty schedule and a diligence checklist tend to cover much the same ground from opposite directions.
Warranties are the part of a seed deal where founders quietly take on personal risk — a single unread statement, given personally and undisclosed, can follow you well past completion. A SuLe solicitor can review the warranty schedule, tighten your disclosure letter and negotiate a sensible cap. Book a free investment readiness check
Keep reading: What is a disclosure letter? · What is due diligence — and what will investors ask for? · What documents do I need to close a seed round in the UK? · What happens if we breach an investment warranty? · What is a subscription (investment) agreement? · What happens at completion of a funding round?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
