Asset and liability warranties in fundraising: practical 2026 guide

Asset and liability warranties in fundraising: a practical definition

In fundraising, an asset and liability warranty (garantie d’actif et de passif, GAP) is a contractual arrangement under which founders (and sometimes the company) represent the exact state of assets and liabilities predating the investment and undertake to indemnify investors for discrepancies discovered after closing. It is not a legal obligation but a freely negotiated clause governed by general contract law (Civil Code, art. 1101 et seq., Legifrance).

A GAP in venture differs from one in M&A: it targets specific risks (capitalisation, intellectual property, tax and employment compliance, litigation, key contracts), with lower caps and shorter periods, often qualified by founders' stated “knowledge”. It coexists with the round's economic mechanisms (valuation, liquidation preference, anti-dilution clauses, etc.).

Avoid confusion: a GAP has no connection with public guarantees (e.g. the State guarantee on PGE loans under the Order of 23 March 2020) or covered bonds (Directive (EU) 2019/2162). Nor is it a deposit guarantee (FGDR).

Why do investors request it?

• Information asymmetry: even with thorough legal due diligence and a structured data room, pre-existing risks may emerge after investment.
• Protection against overvaluation: an overvalued key asset (patents, recurring SaaS contracts, authorisations) may distort the valuation.
• Management of tax and employment risks: contributions, VAT, CIR/CII, mishandled stock options/BSPCE, etc.
• Alignment of interests: a well-calibrated GAP makes founders accountable without blocking the transaction.

From a regulatory perspective, the fundraising takes place privately without an AMF prospectus, but good investor-information and governance practices are still expected (AMF; guides and guidance). Corporate steps (extraordinary general meeting, capital increase) comply with the Commercial Code and formalities described by Service Public Pro — business guidance. For operational guidance, Bpifrance gathers useful startup funding resources (Bpifrance).

Where should the GAP sit in the documentation?

In practice, the GAP appears in the investment agreement (or SPA in M&A), is referenced in the shareholders' agreement and may feed into the articles for certain “fundamental” matters (capitalisation, attached rights). GAP parameters are generally outlined in the term sheet to avoid surprises at signing/closing.

Key clauses for a balanced GAP

1) Representations and warranties (R&W)

• Fundamental: company existence, capitalisation/cap table, authority, issued securities, absence of hidden options, ownership of strategic assets (particularly IP).
• Operational: regulatory compliance, tax and employment, material contracts, litigation, personal data (GDPR), intellectual property and IP chain of title.
• Qualifiers: founders' reasonable “best knowledge”, materiality thresholds and, where applicable, a “materiality scrape” (materiality thresholds limit only disclosure, not indemnification).
• Disclosure letter: listed exceptions with precise data-room references (timestamped, immutable references).

2) Thresholds, deductibles and caps

• De minimis: no individual claim for losses < €X.
• Basket: indemnification starts only when aggregate losses exceed €Y (simple threshold) or applies to 100% above the threshold (absolute deductible).
• Caps: overall cap (often a percentage of funds raised or a salary multiple for founders) and specific caps (tax, employment, IP, securities).

3) Survival period

• Standard: 12 to 24 months for most operational R&W.
• Specific: tax/employment aligned with applicable limitation periods (often 3 years); IP and “fundamental” R&W may survive longer, up to the statutory limitation period (in commercial matters, often 5 years in practice; see general guidance on Justice.fr).

4) Loss calculation and common exclusions

• Net loss: deduct insurance proceeds, recoveries and tax savings.
• No double recovery and a duty to mitigate.
• Carve-outs: known and disclosed risks, post-closing changes in law, business plans not warranted.

5) Claims governance

• Notification: form, recipients, deadline, minimum information.
• Conduct of claims: who leads the defence, founders' participation rights, limits on settlement without consent.
• Payment and set-off: payment arrangements, deadlines, interest, possible contractual set-off against amounts otherwise due.

Negotiation tip: align caps/deductibles and periods with liability limitations already accepted by the parties. For the rationale behind caps and exclusions, our guide to limitation-of-liability clauses provides a useful framework.

Securing performance: backing the GAP

• Escrow: reserve a portion of funds at signing, released in stages. In a primary fundraising round, modest targeted escrows are preferred (identified risks) to avoid squeezing the company's cash.
• Bank guarantee or independent guarantee issued for investors' benefit.
• Pledge over founders' shares, with maintenance covenants.
• W&I insurance: more common in M&A, possible in later rounds to cover residual risks (assess cost-effectiveness).

Check compatibility with corporate obligations (e.g. payment of contributions, capital increase) under the Commercial Code and Service Public Pro formalities guidance.

Claims process and indemnification calculation

1. Detailed notice within the survival period, with supporting evidence.
2. Adversarial review: reasonable access to information, duty to cooperate.
3. Defence and settlement: apply de minimis/baskets/caps, calculate net loss, set payment timetable (or draw on escrow).

Good practice: coordinate the GAP with other shareholders' agreement commitments (governance, information, budgets) to prevent risk rather than compensate for it.

Negotiation checklist (investors and founders)

• Due diligence: map legal/tax/employment/accounting risks and adjust caps/periods accordingly. See our guide to preparing for due diligence.
• Term sheet: concise framework for R&W, caps, periods and security backing the warranty (escrow/guarantee). See negotiating your term sheet.
• Disclosure letter: precise references to the data room, versioned and timestamped.
• Periods: 12–24 months (standard), tax/employment aligned with limitation periods, longer for fundamental warranties (see Justice.fr guidance).
• Caps: overall cap + specific caps, deductible and de minimis consistent with round size.
• Security: proportionate escrow, targeted guarantee or pledge.
• Formalities: comply with extraordinary general meeting and capital increase rules (Commercial Code; Service Public Pro — business guidance). Practical guidance is available on Bpifrance and from the AMF (good information practices).

Practical examples and points to watch

• Inaccurate cap table: if a forgotten share commitment causes post-closing dilution, the GAP may cover the economic loss (e.g. compensatory buyback or indemnity), subject to the applicable cap.
• CIR/CII challenged: adjust the period and provide a specific tax cap, with an obligation to notify the investor immediately of an audit.
• Terminable key SaaS contracts: exclude scenarios already disclosed; otherwise lost MRR may be claimed if termination contradicted the representations given.
• GDPR/IP: if freelance contributions were not properly assigned, the IP GAP and chain of title avoid costly invalidation of IP rights.

Avoid vague clauses (unclear scope, unlimited periods, no basket): uncertainty increases litigation risk and fundraising costs. In a dispute, the burden of proof and limitation periods will be assessed under general law (see Legifrance and Justice.fr).