Indemnification is a purchase-agreement clause in which the seller agrees to reimburse the buyer for losses arising from breaches of the contract, misrepresentations, or pre-closing liabilities that surface after the sale.
Worked example
| Line | Amount |
|---|---|
| Undisclosed pre-closing tax bill discovered | $30,000 |
| Escrow holdback set aside at closing | $50,000 |
| Claim paid from escrow | $30,000 |
| Escrow released to seller after survival period | $20,000 |
Because the loss ties to a pre-closing liability, indemnification makes the buyer whole from the holdback.
Why it matters when buying a business
Indemnification turns the seller's reps and warranties into real money. Negotiate the survival period, caps, and baskets, and back it with an escrow holdback so there's a funded source to collect from. Without a holdback, an indemnity is only as good as the seller's willingness to pay later.
