Indemnities are contractual provisions aimed at protecting both the buyer and the seller against post-transaction risks. Indemnities cover damages, costs and losses for which the seller is liable. For example, any third party claims, environmental claims and liabilities (such as accounts payable, taxes and litigation) that arise and are associated with issues that existed before completion of the sale.
Both the buyer and the seller are somewhat protected and assured regarding any arising adverse occurrences and/or discoveries related to and pre-dating the sale.
Indemnities give the buyer greater confidence against any unpleasant surprises (emerging liabilities) pre-dating, but arising after completing the sale. Buyers seek well thought out indemnities written into the sale agreement as some level of protection against such liabilities.
With indemnities negotiated and agreed with the buyer, and written into the sale agreement, what the seller could be liable for is well documented and thus protecting against arising liabilities not covered in the indemnities.
Just like many other aspects of the business sale process, indemnities are subject to negotiation. For the seller, offering more, helpful seller indemnities would give the buyer greater assurance about the sale and could help increase the valuation and sale price. However, much caution needs to be exercised as to the quantum and extent of indemnities offered so as to limit liabilities one could bear in the event of breaches.
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