Legal Blog

M & A Nuggets: Indemnification

Signature To a seller, the most important part of a business sale is receiving the purchase price.  Conversely, to the purchaser, one of the most important parts of the transaction is the ability to recover part or all of the purchase price from the seller, if the seller breaches the purchase agreement and causes losses to the purchaser.  This recovery of losses is known as indemnification.  In concept, indemnification seems simple – if the seller breaches the agreement, the buyer can recover its’ losses.  In practice, however, indemnification is fraught with risks.  The indemnification clause must be written in a clear and concise way with sufficient detail to avoid ambiguity or confusion.  For example, at what point in time and how long can a purchaser pursue indemnification from the seller?  What is the procedure in pursuing a claim?  Whose lawyers will be involved in the third-party claim that led to the call for indemnification?  How does the insurance that either the purchaser or seller have effect the indemnification claim?  These, and many other questions must be answered to craft an indemnification provision that sufficiently protects the purchaser.  Important – the purchaser’s ability to recover its attorneys’ fees must be specifically mentioned, because using the term “losses, damages and costs”, will not cover attorneys’ fees.  The bottom line is that the seller typically receives all or a great portion of the purchase price at closing.  If the purchaser does not protect itself with an adequate indemnification clause, and a loss occurs after the closing, the purchaser will be out of luck, and the seller will have pocketed the money.


Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress 


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