Meaning
Specific exceptions to general contractual protection identify areas where a seller remains personally liable for losses. An indemnity carveout identifies risks that the seller retains regardless of the standard caps or time limits established in the main agreement. It governs the specific liabilities that the buyer refuses to assume, such as fraud, environmental damage, or unpaid taxes.
The term stops applying once the specific period for the carved out liability expires or the underlying obligation is satisfied.
Liability Retention
Responsibility for historical actions remains with the founder when the purchase agreement includes a specific exception for known risks. This indemnity carveout ensures the buyer does not inherit the financial consequences of previous mismanagement or undisclosed litigation. The arrangement places the burden of past errors squarely on the individual who was in the seat at the time of the event.
Breach Exception
Intentional misconduct or gross negligence usually triggers a loss of protection through these specific clauses. Because an indemnity carveout for fraud has no financial limit, it represents an uncapped threat to the personal wealth of the seller. This creates a lasting requirement for the person to maintain liquid reserves long after leaving the company.
Settlement Floor
Thresholds that normally prevent minor claims from being filed are often ignored for these specific categories. An indemnity carveout allows the buyer to pursue the seller for the first dollar of loss. It remains active until the statute of limitations for the specific category is reached.
