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In the context of mergers and acquisitions, indemnity clauses encapsulate the extent of liability a seller will assume post-closing based on the representations and warranties they present to the buyer. So, it’s especially important that sellers of a business carefully consider several factors about the scope of indemnification and how those representations are conveyed to a buyer in the purchase agreement.
Fundamentally, indemnification is a guarantee of compensation for losses or damages incurred by the buyer of a business due to circumstances unforeseen at the time of closing. It’s a way to share risk between buyer and seller.
If you’re selling a business and take only a few nuggets of wisdom away from this video, my tips regarding indemnification are:
1. Maximize the deductible
2. Minimize your cap
3. Shorten the survivability of indemnity (to the extent that you can)
4. Carefully consider representations and warranties made to the buyer
Now, if you’re unclear on any of those four tips, watch the video! If you still have questions, feel free to reach out. Leave a comment or contact me.
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For a deeper dive into and other legal issues vital to the success of your deals and your business, visit me at:
http://www.cenkuslaw.com
Just starting up? Check this out for my advice on startup success: http://www.thestartupshepherd.com.
You can also reach me at:
https://www.linkedin.com/in/brettcenkus
http://www.cenkuslaw.com
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About me:
My 20+ years of experience in business finance, business law and entrepreneurship have led me to believe that numbers and logic are awesome tools, but understanding human nature and emotions is the first step to business success.
The Cenkus Law Firm provides services related to mergers & acquisitions, general business issues and startups, including founders’ agreements and fundraising. I also consult with entrepreneurs and have invested my own capital as an angel investor.
From 2010-2013 I served as Chief Legal Counsel of a publicly-trade international oilfield services company. From 2001 to 2006 me and a partner founded and built Paragon Residential Mortgage. Paragon was sold to Bridge Investments in 2006.
I hold a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.
Now, I live in Austin, TX with my wife and two kids. I enjoy reading, running, classic movies, great food and wine and some great American football.
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