Indemnification

Definition

The seller's promise to cover losses their statements cause.

Why It Matters

It is the enforcement mechanism behind every promise in the purchase agreement; the basket and cap numbers decide what a breach is actually worth to you. Just as important is whether anything backs it: a claim against a seller who has spent the proceeds is a lawsuit, while a claim against money held in escrow is a deduction. That is why the escrow amount and how long it is held often matter more in practice than the size of the cap itself.

In numbers: With a $40k basket and a 10% cap on a $4M deal, a $24k breach is yours to eat (under the basket) while an $800k one recovers only to the $400k cap; the two numbers, not the promise, set your real protection.