Indemnification cap

Definition

The ceiling on what a seller can be made to pay for a broken promise.

Why It Matters

Read it beside the basket, because the pair together decides how much risk actually transfers. A common shape at this size is a ceiling somewhere between ten and twenty percent of price, with a few carve-outs sitting outside it: title, taxes, and fraud. Which promises are capped matters more than the number, since a low ceiling over everything is a different deal from a low one with those three carved out. The figure on its own tells a buyer almost nothing.

In numbers: A 10% cap on a $4M deal stops at $400,000, whatever a later tax assessment turns out to be worth.