In a perfect world, all issues as between a purchaser and a
vendor of a business (whether assets or shares) are settled at the
time of closing. Unfortunately, this is not how the real world
operates, notwithstanding the level of due diligence conducted by a
purchaser and its professional advisors. To protect against
go-forward liability, vendors, who covet keeping as much purchase
price as possible, build protections into their acquisition
agreement to limit their potential liability. These protections
range from incorporating knowledge and materiality qualifiers into
their agreement, making representations on a several (versus joint
and several) basis, limiting the survival period of their
warranties and so on. This blog post discusses two additional
limitation of liability concepts that are popular among vendors of
a business and their professional advisors: indemnification baskets
and liability caps.
