Meaning
Financial obligations remaining with a seller after the completion of a business sale represent a residual risk. A post closing liability typically arises from representations and warranties made during the transaction that prove to be inaccurate. It governs the amount of the purchase price that is essentially at risk for a defined period after the handover.
The term stops applying once the survival period for all contractual claims has passed.
Seller Indemnity
Guaranteeing the accuracy of the company books often leads to a situation where the founder must pay back a portion of the proceeds. This post closing liability acts as a tail on the transaction, preventing a clean break from the old seat. The cost to the person is a lack of certainty about their final net worth.
Escrow Retention
Funds are frequently held in a third party account to ensure the buyer can easily collect on any claims. While the post closing liability is being resolved, the founder cannot use that portion of the wealth for other investments. This restriction on capital lasts for twelve to twenty-four months in most deals.
Indemnification Cap
Agreements usually set a maximum amount that the seller can be forced to pay for most types of breaches. This ceiling provides the only protection against total loss.
