You Sold Your Company. When Do You Relax?

Many founders assume that selling a company means the risk ends the day the deal closes. However, buyers rarely pay all proceeds immediately, often holding back funds to cover breaches of representations or ongoing covenants. While closing risk cannot be eliminated entirely, founders can protect their proceeds and contain post-closing exposure by negotiating key structural limits before signing.

Key Limits for Sellers:

• Cap the Indemnity: Split liabilities so fundamental breaches are capped at the purchase price, while non-fundamental claims (e.g., financials, contracts) are restricted to roughly 5–10% of the deal value.
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• Negotiate a Basket: Establish a minimum damages floor (typically 1–2% of the purchase price) so the buyer cannot recover for minor, everyday issues unless total claims surpass that threshold.
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• Limit the Survival Period: Set a definite expiration date—usually 12 to 18 months for non-fundamental representations—after which holdback funds are released and liability permanently ends.
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• Insure the Representations: Use Representation and Warranty Insurance (RWI) in larger deals to shift breach exposure to an insurer above a 0.5–2% retention, removing seller proceeds as the buyer's primary remedy.

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