So you’re considering selling your company, or have already decided to do so. You know that it isn’t necessarily going to be easy. You have to identify a buyer, settle on a purchase price and the other terms of the deal, and then get through the due diligence process where your buyer “kicks the tires” of your business. All of this can be daunting, especially for a first-time seller. And then you still must document the transaction with a purchase agreement.

When it comes to negotiating a purchase agreement, one of the key components is indemnification, which is a contractual obligation by one party to reimburse another party for its losses. As you might expect, in the purchase agreement you’ll likely be required to make a wide variety of factual representations and warranties about your business as of closing, such as reps identifying your company’s contracts, disclosing any problems, and the like. You’ll then be asked to stand behind these reps through an indemnification provision under which you agree to reimburse the buyer for losses it suffers as a result of your reps being inaccurate or untrue. A key consideration for you as a seller is deciding how far you are willing to go to stand behind those reps. Although the concept of indemnification may not be new to you, it has its own characteristics, rules and implications in the context of selling a business. In particular, you should consider the following...

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