Indemnities
Contractual promises to compensate the buyer pound-for-pound for specific identified losses or liabilities.
Full Definition
Indemnities are contractual undertakings by the seller to compensate the buyer on a pound-for-pound basis for losses arising from specific identified matters or risks.
Indemnities vs Warranties: Warranties: General statements about the business; damages based on diminution in value; subject to mitigation and remoteness rules
Indemnities: Specific risk allocation; pound-for-pound recovery; generally not subject to normal contractual limitations
Common indemnity areas:
- Tax: Historical tax liabilities, pre-completion tax disputes
- Environmental: Known contamination or compliance issues
- Litigation: Ongoing or threatened legal proceedings
- Product liability: Claims relating to pre-completion products
- Employee matters: Pre-completion employment claims
Key indemnity terms:
- Scope: What losses are covered
- Conduct provisions: Who controls defence of claims
- Tax gross-up: Whether indemnity payment is grossed up for tax
- Limitations: Caps, time limits, de minimis
- Insurance proceeds: Credit for insurance recoveries
Negotiation considerations: Sellers prefer warranty protection (harder to claim, damages-based) while buyers prefer indemnities for known or quantifiable risks.
Related Terms
Warranties
Contractual statements by the seller about the business, breach of which may entitle the buyer to damages.
Disclosure Letter
A letter from the seller disclosing matters that qualify the warranties given in the sale agreement.
Share Purchase Agreement (SPA)
The definitive legal contract governing the sale and purchase of shares in a company.
Tax Deed
A separate agreement providing indemnity protection for tax liabilities arising from the pre-completion period.