Indemnity
Indemnity is the seller's promise, in the purchase agreement, to make the buyer whole if what was said about the business in the agreement turns out to be wrong.
In a sale
What backs an indemnity after closing?
Usually part of the price: an escrow or holdback set aside at closing covers indemnity claims for a period, and returns to the founder less any claims made. The letter of intent may say how indemnity claims will be limited, and like the escrow's size and length, that limit is best negotiated while several buyers are still at the table. Representations and warranties insurance, bought at the sale, can replace much of the money a buyer would otherwise hold in escrow.
Where it comes up
Read it in context
In the articles
- Where founders leave money on the tableMost of what founders lose in a sale is lost in their own decisions, and each one has a fix.
- What an LOI is really sayingThe headline is one term of nine. Here are the other eight.
- Diligence yourself firstEvery business has issues. The question is who finds them.
- Structure is priceTwo offers with the same headline can differ by millions in what you keep.
See the terms with your own numbers
The Go-To-Market Analysis (GTMA) builds the file a buyer would build on your business, before a buyer does.