Glossary · Deal documents
Indemnity
Also called indemnification, indemnities
Definition
An indemnity is a promise by one party to cover a specific loss pound for pound if it happens. In M&A, buyers ask for indemnities against known risks found in due diligence, such as a pending tax dispute, because a warranty claim would not cover something the buyer already knew about.
Where indemnity comes up
On this site, in our guides and in the conversations we've written up.
Video · Firmex Why an organised data room protects the price in a fundraise or sale Known problems should be disclosed early with a plan to fix them, since diligence teams will find the hole and warranties and indemnities would cover it anyway. 
Video · Khaitan & Co Cross-border diligence: why deals fall on clearances, not interest The approvals partner says the findings must land somewhere: an India-focused deal leans on indemnities, US and European deals take different approaches, and a finding with no deal impact is more like a Wikipedia or trivia for everyone to… Related terms
Representations and warranties Statements of fact the seller makes about the business in the purchase agreement, with a remedy if they prove untrue. W&I insurance Insurance that pays out if the seller's warranties in a deal turn out to be wrong. Escrow Money held back from the price by a third party, released later if no claims are made. Asset purchase agreement The contract for buying selected assets and liabilities of a business, instead of its shares. Change of control clause A contract term that lets the other party end or renegotiate the contract if the company is sold. Confidential information memorandum The detailed sales document a seller's adviser sends to buyers after they sign an NDA. Disclosure letter The seller's list of known exceptions to its warranties, which limits what the buyer can later claim for. Letter of intent A mostly non-binding document that sets out the main terms of a deal before the final contract is negotiated.