This Article is the third installment of a series of discussing important legal issues to consider when buying a business. The first installment discussed the role of the Exclusivity Agreement, and the second installment examined the important distinctions between structuring the buyout as a stock purchase in contrast to a purchase of the key assets of the business. Part III of the series continues with a discussion of the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing whether the deal is structured as a stock or asset purchase transaction. The escrowed portion of the purchase price ensures the Buyer's ability to actually obtain a remedy for claims arising from a breach of the Seller's covenants and representations that survive the closing as well protection for a Buyer in the event it needs to invoke its indemnification rights arising from the claims of a third party. However, as with any provisions of a contract, the escrow terms must be carefully drafted to address the circumstances under which the Buyer can assert a right to the escrowed funds and the mechanisms for invoking the right.
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Legal Issues When Buying a Business: Indemnification Basket