M&A
Selling your SME in Luxembourg: due diligence and representations and warranties
8 June 2026 · 8 min
Prepare the sale rather than endure it
Selling your SME in Luxembourg on good terms begins well before negotiations start: the company must be prepared to be examined. The buyer will conduct due diligence, that is, a legal, tax, employment and financial audit. Anything that is not in order will translate into a lower price or heavier warranties for the seller.
Anticipating means updating the articles of association, the register of beneficial owners, the key contracts, the business permits and employment matters. A prepared seller arrives in a position of strength and limits the buyer's scope for renegotiation.
Understanding the buyer's due diligence
Due diligence aims to identify hidden risks: ongoing disputes, employment or tax liabilities, contracts terminable on a change of control, dependence on a single client or manager. Each weakness uncovered becomes a negotiating lever.
The seller has an interest in organising a clear data room and disclosing the relevant information. What is properly disclosed can in principle be excluded from the scope of the warranties: controlled transparency protects the seller as much as the buyer.
Representations and warranties, the central clause
The representations and warranties clause is the provision by which the seller undertakes to indemnify the buyer if an undisclosed liability appears after the sale, or if an asset turns out to be overvalued. It covers facts whose origin predates the sale.
The real stakes lie in the details: indemnification cap, deductible, duration of the warranty, treatment of tax and employment liabilities, and security for the warranty, for example part of the price held in escrow. A poorly calibrated clause can expose the seller for years after the sale.
Depending on your situation, the drafting must balance the buyer's security and the seller's protection. The M&A lawyers at Cerno Law Firm negotiate these balances and coordinate, where the tax treatment of the sale is at stake, the analysis of the tax team.