We are terrified of post-closing liabilities and indemnification claims eating into our sale proceeds. How do we use our exit runway to prepare our records so we can qualify for representations and warranties insurance?

Question

Tyler Smith · Accepted Answer

Post-closing disputes over representations and warranties can ruin an exit. If a buyer discovers undisclosed liabilities or operational errors after the sale, they can claw back your proceeds from escrow. To protect your cash, you should target representations and warranties insurance.

This insurance shifts the risk of post-closing breaches from the seller to an insurance carrier. However, insurers will not write a policy if your operational records are disorganized or suspicious. You must use your runway to make your business highly insurable.

Start by running a comprehensive self-audit of your legal and compliance records. Ensure all corporate resolutions, shareholder agreements, and board minutes are fully documented and signed.

Next, clean up your customer and vendor contracts. Insurers will look closely at your material contracts. Verify that they are signed, active, and free of hidden liabilities or unusual indemnity commitments.

Clean up your employment practices. Document your HR policies, verify employee classifications, and ensure your payroll and benefits systems are fully compliant with labor laws.

Finally, organize all of this data in a secure, structured virtual data room. When an insurer sees a clean, organized, and complete records system, they can underwrite the policy with confidence. This allows you to walk away from the closing table with minimal escrow requirements and absolute peace of mind.