Stock Purchase Agreement Indemnification Provision

A compensation cap is a typical restriction on liability for compensation for transactions of private companies of goods and services. While a ceiling is usual in the R and D, exceptions to the cap (i.e. situations where the compensation cap does not apply) also apply. The most common exceptions to a compensation cap relate to offences committed by compensation against its most critical or “fundamental” statements or alliances or agreements. The first exception recognizes that the seller/compensation should “leave behind” his insurance and guarantees with respect to the areas of risk allocation that are essential for the overall allocation of risks between the buyer and the seller. The best example is the security on acquired assets or shares. A buyer will not argue unreasonably that if the seller`s representations of ownership of the acquired assets or equity are false, the seller should have full responsibility for the damage caused to the buyer by legal defects. The latter exception – as far as alliances are concerned – is based on the idea that the question of whether a party`s alliances are violated or not is totally under the control of that party. Therefore, the offending party should not be allowed to use the compensation cap as a shield, but should be obliged to meet its obligations under the agreement. A common example is that of the seller`s non-competitive agreements, in which the seller agrees not to compete with the sale of the business after the conclusion. From the buyer`s point of view, the seller should be forced to respect its agreement, not to face competition, and not be able to compete “without liability” beyond a compensation ceiling.

The nature of the provision dealing with the debate between the parties is called the “anti-sandbaging provision.” An anti-sandbagging provision prevents the buyer from being compensated for non-compliance with guarantees and guarantees that the buyer knew before closing. Anti-sandbag regulations could be as follows: the seller and buyer can negotiate compensation protection in a sales contract. In general, the person who can claim damages in the event of damages (of the beneficiaries of the exemption) will negotiate extensive compensation rights, while the person who can pay damages to the beneficiary of that loss (the beneficiary of the compensation) will try to limit the number of rights that can be compensated and the total amount of damages related to them (see restrictions section below). Following a closure, the purchaser (as the new owner and operator of the asset or activity sold) will most likely be exposed to the risk of losses after closing and will often be the entity seeking more full compensation.

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