Disclosure Letter
Definition
A disclosure letter is the document a seller delivers alongside the sale and purchase agreement to qualify the warranties they are giving. Warranties are statements that the business is in a particular condition; the disclosure letter sets out the exceptions — the facts that make a warranty untrue or partly untrue — so that the buyer takes the business knowing about them and cannot later claim for what was disclosed. It usually contains general disclosures (matters a buyer is deemed aware of, such as public filings at Companies House) and specific disclosures against individual warranties, supported by a bundle of documents. For a seller, thorough disclosure is the main protection against warranty claims; for a buyer, the disclosure letter is a map of the business's known problems and a prompt for price, indemnity or further diligence. Preparing it well is a reason to organise the evidence base early, before going to market.
Complementary Terms
Concepts that frequently appear alongside Disclosure Letter in practice.
Warranties and indemnities are the contractual protections a buyer receives from a seller in a business sale. Warranties are statements of fact about the business — that the accounts are accurate, that it owns its assets, that there are no undisclosed disputes — and if a warranty proves untrue the buyer may claim damages for the resulting loss.
The sale and purchase agreement (SPA) is the definitive contract that transfers ownership of a business from seller to buyer. It sets out the price and how it is paid, the completion mechanism, and the warranties and indemnities the seller gives about the state of the business.
A comprehensive due diligence exercise commissioned and paid for by the seller of a business prior to a sale process, with the resulting reports made available to prospective buyers. VDD typically covers financial, tax, commercial, and legal matters and is prepared by independent professional advisors.
Further Reading
Preparing Your Business for Sale: The Owner's Checklist
Why early disclosure preparation protects your price.
Read more →Related FAQ
How do I prepare my business for sale?
Get the numbers clean and normalised, tidy contracts and intellectual property, reduce founder dependency, and prepare a vendor due diligence pack and data room — all framed around what a buyer's diligence will test.
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