How Can a Clause Be Drafted to Protect the Buyer of a Share Package from Hidden Subsequent Liabilities?

Question from Aitana, How Can a Clause Be Drafted to Protect the Buyer of a Share Package from Hidden Subsequent Liabilities?

Answer from AI:

When purchasing a share package, it’s crucial to protect yourself from potential hidden subsequent liabilities. This can be achieved by including a specific clause in the purchase agreement. This clause, often referred to as an “indemnity clause” or “hold harmless clause”, can provide a level of protection against unforeseen liabilities.

What is an Indemnity Clause?

An indemnity clause is a legal provision that ensures one party will cover the losses or damages encountered by another party under certain circumstances. In the context of a share purchase, the seller would indemnify the buyer against any hidden liabilities that arise after the purchase.

Example of an Indemnity Clause

While it’s recommended to consult with a legal professional to draft a clause tailored to your specific situation, a general example of an indemnity clause might look like this:

“The Seller shall indemnify and hold the Buyer harmless from and against all losses, liabilities, damages, and expenses (including reasonable attorneys’ fees and costs) (‘Losses’) resulting from any breach of any representation, warranty, covenant, or agreement made by the Seller in this Agreement or any liabilities not disclosed in the Company’s financial statements or otherwise in writing by the Seller to the Buyer prior to the Closing.”

Key Elements of an Indemnity Clause

An effective indemnity clause should include:

• Identification of Parties: Clearly identify the buyer and seller.
• Scope of Indemnity: Define what losses or damages are covered.
• Duration: Specify the time period during which the clause is effective.
• Limitations: State any limitations or exceptions to the indemnity.

Legal Advice is Recommended

While this information provides a general understanding of indemnity clauses, it’s important to consult with a legal professional when drafting such a clause. The language used can significantly impact the level of protection provided, and a lawyer can help ensure that the clause is legally sound and tailored to your specific situation.

For more information on indemnity clauses, you can refer to the Legal Information Institute’s explanation of indemnity. Remember, this information is intended to provide a general understanding and should not be used as a substitute for legal advice.