LegalDeal Structure
Indemnification
Also known as: Indemnity
The seller's contractual obligation to compensate the buyer for losses arising from breaches of the seller's representations and warranties, or from specific pre-closing liabilities.
WHY IT MATTERS
Indemnification is the buyer's insurance policy against the seller lying or being wrong about the business. If the seller represented that all customer contracts are enforceable and one turns out not to be, the buyer can claim indemnification. Key parameters: the CAP (maximum exposure, typically 10-25% of purchase price), the BASKET (minimum threshold before claims apply), and the SURVIVAL PERIOD (how long the buyer has to make claims, typically 18-36 months). A have-to-sell founder typically accepts higher caps, longer survival, and broader claim categories than a want-to-sell founder.