Indemnification Information
Indemnification provisions are among the most heavily negotiated terms in any business purchase agreement. They establish which party bears the financial responsibility for losses that arise from certain events, such as undisclosed liabilities, breach of contract representations, or pre-closing tax obligations. The indemnifying party (typically the seller) agrees to 'hold harmless' and compensate the indemnified party (typically the buyer) for covered losses. Indemnification sections typically address the scope of indemnifiable claims, survival periods, deductible baskets (minimum thresholds before claims can be made), caps on liability, and procedures for making indemnification claims.
Florida Legal Definition
Under Florida law, indemnification provisions in business contracts are generally enforceable as written, subject to general contract principles. Florida Statutes §607.0850 through §607.0858 govern indemnification of corporate directors and officers, allowing corporations to indemnify them against liability incurred in their official capacity. For business sale agreements, indemnification is governed by the specific contract terms, and Florida courts interpret these provisions strictly according to their plain language.
How It's Used in Practice
In practice, attorneys negotiate indemnification provisions carefully to balance the interests of both parties. Key terms include the survival period (how long after closing the buyer can make claims, typically 12-24 months), the basket (the minimum aggregate loss threshold before claims can be made, often 0.5-1.5% of the purchase price), and the cap (the maximum indemnification liability, often limited to the purchase price or a percentage thereof). Escrow holdbacks are commonly used to secure the seller's indemnification obligations, with funds held by a neutral escrow agent for release after the survival period expires.
Key Takeaways
- Indemnification allocates risk between buyer and seller in business transactions.
- Key terms include survival period, basket (minimum threshold), and cap (maximum liability).
- Florida courts enforce indemnification provisions according to their plain language.
- Escrow holdbacks commonly secure seller indemnification obligations.
- Corporate director/officer indemnification is governed by Florida Statutes §607.0850.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron, Shea & Johnson, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
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