The buyer's draft purchase agreement demands an asset sale with a three-year survival period for general representations and an indemnity cap set at twenty percent of the purchase price. Since we wanted a stock sale with a clean exit, how do we negotiate these indemnity terms down using our documented EOS processes as proof of low historical liability?

Question

Tyler Smith · Accepted Answer

A buyer who insists on a long survival period and a high indemnity cap is trying to shift transactional risk back onto your shoulders long after the deal has closed. In a typical mid-market transaction, general representations should survive for twelve to eighteen months, and the indemnity cap should be limited to ten percent or less of the purchase price, especially if you purchase representation and warranty insurance.

To push back on these aggressive demands, you must prove that your business operates with an exceptionally low risk profile. Use your documented EOS 3-Step Process as your primary negotiating leverage. Show the buyer your fully documented core processes, which demonstrate that your operations are standardized, repeatable, and subject to regular quality controls.

Provide the historical data from your weekly Scorecards to prove that customer complaints, billing disputes, and regulatory infractions are virtually non-existent. This level of operational discipline shows the buyer that you do not have hidden liabilities buried in your historical operations.

By presenting this structured operational proof, you can argue that a standard fifteen-month survival period and a five percent indemnity cap are more than sufficient. Your documented operating system transforms what would normally be a tense legal debate into a factual, data-driven confirmation of your company's operational integrity.