Seller Warranties, Indemnities and the Disclosure Letter

Short answer: warranties are statements of fact you make about your business in the sale agreement, indemnities are promises to repay the buyer for specific losses, and the disclosure letter is where you list known problems so they cannot later be claimed as a breach. How long you stay liable depends on the caps, thresholds and claim periods you negotiate. Disclose early and fully, and agree clear limits before you sign.

This guide is general information based on Singapore Statutes Online, IRAS, a Singapore High Court judgment, Baker McKenzie's Singapore private M&A guide and SG Business Mart pages, checked on 27 October 2026. It is not legal or tax advice, so have a lawyer review your sale agreement before you sign.

What are warranties in a business sale agreement?

Warranties are statements you confirm are true about the business at signing, and often again at completion. Typical areas include:

• Title and capacity. You own what you are selling and are allowed to sell it.
• Accounts. The financial statements you shared are accurate.
• Contracts and the lease. Key customer, supplier and lease agreements are valid and not in default.
• Staff. Salaries, CPF and leave have been dealt with properly.
• Tax. Returns were filed and taxes were paid.
• Compliance and disputes. Licences are in place and there are no claims or investigations other than those you disclosed.

If a warranty turns out to be untrue and the buyer suffers a loss, the buyer may claim against you after completion. Warranties are usually more extensive in a share sale, because the buyer takes over the company with its whole history. Our guide to selling your Pte Ltd by share sale walks through that process, and asset sale vs share sale compares the two structures.

How is an indemnity different from a warranty?

A warranty claim generally requires the buyer to show that a statement was untrue and that this caused a loss. An indemnity is usually a promise to repay a specific type of loss, such as a known tax issue, a pending claim or a dispute with a former employee, often dollar for dollar if the risk materialises.

Buyers commonly ask for indemnities for problems found in due diligence. From your side, keep each indemnity narrow: name the exact issue, set a maximum amount and a time limit, and agree how claims are handled. Our guide to what due diligence buyers need shows what buyers will be looking for.

What is a disclosure letter and why does it protect you?

A disclosure letter is a document from you, the seller, that sets out exceptions to the warranties. If a warranty says "there are no disputes with customers" and you have one, you disclose it in the letter. A properly disclosed matter is generally carved out of the warranties, so the buyer cannot later claim for it as a breach.

• Be specific. Name the matter, the amount and the documents. Vague, general disclosures are often resisted by buyers.
• Cross-check the data room. Make sure what you disclose matches the documents you shared.
• Update before completion. If something changes between signing and completion, ask your lawyer how the agreement deals with new disclosures.

Disclosing problems up front also builds trust. As our guide on how to negotiate business sale terms notes, buyers usually react better to a disclosed issue with context than to a surprise found later. The paperwork that comes before the agreement is covered in what you sign before a business sale.

How do caps, thresholds and claim periods limit your liability?

Limits on liability decide how much you could repay and for how long. Common tools include:

• Cap. A maximum total you can be liable for, usually expressed as a share of the price.
• De minimis. Small individual claims below a set amount are ignored.
• Basket. Claims can only be brought once they add up to a set total. With a "tipping" basket, the full amount becomes claimable once the threshold is passed.
• Claim period. The buyer must notify claims within an agreed period after completion.
• Retention or escrow. Part of the price is held back to cover claims, then released to you.

For reference, Baker McKenzie's Singapore private M&A guide reports that in its market, caps of 20 to 50% of the price are common for business warranties, while fundamental warranties such as title are capped at 100%. It describes de minimis thresholds of 0.1 to 0.3% for individual claims and tipping baskets of 1 to 3%, with fraud usually carved out of the limits. This describes larger corporate deals handled by law firms. Smaller business sales vary widely, so treat these as a reference point for discussion with your lawyer, not as standard SME terms.

If part of your price is held back or paid later, see our guide to earn-outs and deferred payments.

How long is a seller liable after selling a business in Singapore?

It depends first on the claim periods in your agreement. If the agreement is silent, the general fallback is the statutory limitation period. Under section 6 of the Limitation Act 1959, actions founded on a contract cannot be brought after 6 years from the date the cause of action accrued. Under section 29, where the action is based on fraud, the period does not start until the fraud is discovered or could with reasonable diligence have been discovered.

Tax claim periods are often linked to how long IRAS can reassess. IRAS says its statutory time limit to raise an assessment or additional assessment for corporate income tax is 4 years, and for GST 5 years from the end of the prescribed accounting period, with neither limit applying where fraud is involved. Baker McKenzie notes that tax warranties are commonly tied to these periods, general warranties to one or occasionally two full-year audits, and title warranties to longer periods. Our guide to tax when you sell your business covers the tax side.

Can you open a similar business after selling yours?

Often not for a while. Buyers commonly ask for a non-compete (you will not run a competing business) and a non-solicit (you will not approach customers or staff) for a set period and area. In Ng Boon Ching v Claas Medical Centre [2009] SGHC 54, the High Court noted that courts scrutinise employment restraints far more strictly than sale-of-business restraints, because a buyer pays for goodwill. Even so, the court held the doctor-seller's restraint in that case too wide and unenforceable. A restraint still has to be reasonable in scope, area and duration, so agree terms that match the goodwill you are actually selling.

How can you reduce warranty risk before you list?

• Tidy your records. Accounts, tax filings, CPF, contracts, licences and the lease should be complete and consistent.
• Find problems first. Review your business as a buyer would, and fix or document what you find.
• Handle personal data properly. Our guide to PDPA and business sale due diligence explains what to share and when.
• Brief your lawyer early. Ask about warranty scope, caps, claim periods, disclosure and any restraint before you agree heads of terms.
• Keep your listing accurate. Claims in your listing and information pack should match your records.

Our guide to selling a business in Singapore covers the full preparation.

How does listing on SG Business Mart work?

SG Business Mart is a Singapore marketplace where owners list businesses for sale and buyers contact them directly. It is not a broker, so you negotiate the price, warranties and other terms yourself, with your own lawyer. Sellers pay a one-time fee per listing. Current pricing is Basic S$49 for 30 days, Standard S$79 for 60 days and Premium S$99 for 180 days. See how other sellers present their businesses in businesses for sale in Singapore.

Frequently asked questions

What is the difference between a warranty and an indemnity?

A warranty is a statement of fact about the business. To claim, the buyer generally has to show it was untrue and caused a loss. An indemnity is a promise to repay a specific type of loss, often dollar for dollar, so sellers usually keep indemnities narrow, capped and time-limited.

What is a disclosure letter in a business sale?

It is a letter from the seller listing exceptions to the warranties, such as a known dispute or an unpaid bill. A matter that is properly and specifically disclosed is generally carved out of the warranties, so the buyer cannot later claim for it as a breach.

How long is a seller liable after selling a business in Singapore?

Mainly for the claim periods agreed in the sale agreement. Without them, the Limitation Act 1959 generally allows 6 years to sue on a contract, and fraud postpones the start. IRAS can generally reassess corporate income tax within 4 years and GST within 5 years, except for fraud.

What is a typical cap on seller warranty claims?

There is no fixed rule. Baker McKenzie's Singapore guide reports caps of 20 to 50% of the price as common for business warranties in larger deals, with title-type warranties capped at 100%. Smaller business sales vary, so agree a cap that fits your deal with your lawyer.

What are de minimis and basket thresholds?

De minimis means small individual claims below an agreed amount are ignored. A basket means claims can only be made once they add up to an agreed total. With a tipping basket, the whole amount becomes claimable once the total is reached. Both reduce small claims against the seller.

Can I open a similar business after selling mine?

Not if you agreed a valid non-compete. Singapore courts treat sale-of-business restraints more leniently than employment ones because the buyer pays for goodwill, but a restraint must still be reasonable in scope, area and duration. In the Claas Medical case the High Court struck down one as too wide.

Do small business sales need warranties and a disclosure letter?

Most written sale agreements include some warranties, even for small businesses, and buyers often ask for more in a share sale. A short, specific disclosure letter is a simple way to record known issues. Ask your lawyer what level of protection suits the size of your deal.

Ready to sell your business?

Records in order and ready to answer a buyer's questions? Put your business in front of serious buyers: list your business for sale on SG Business Mart.