LegalDeal Structure
Carve-Outs (Indemnification)
Also known as: indemnity carve-outs, special indemnities, cap exceptions
Specific matters pulled out of the indemnification cap, basket, or survival limits so the seller carries fuller — sometimes unlimited — liability for them. Common carve-outs include fraud, taxes, fundamental reps, and known pre-closing issues. They expand seller exposure, not limit it.
WHY IT MATTERS
Indemnification normally comes wrapped in protections for the seller: a cap on total exposure, a basket the buyer must clear before claiming, and a survival period after which claims expire. Carve-outs are the exceptions to those protections. For carved-out matters, the cap may not apply (or a much higher one does), the basket is bypassed, and survival can run for years or the full statute of limitations.
Typical carve-outs are fraud, tax liabilities, fundamental representations (title, ownership, authority), and specific known risks surfaced in diligence. The reason this matters to a founder: a deal can look seller-friendly on its headline cap — say 10% of price — while carve-outs quietly expose the founder to far more, even their entire proceeds, on the carved items. Buyers push to widen carve-outs; sellers push to keep them narrow and clearly defined. The negotiation isn't just "what's the cap" — it's "what escapes the cap," which is often where the real personal risk lives.