What are the "indemnities" in the sale of businesses?
Through "indemnities" it is intended to cover specific risks purchaser by the purchase of a business.
This reduces the emptor, ensuring that if certain events occur, lessen the price by a certain amount. Allows "Price adjustments" depending on the events that occur within a specified period after purchase.
It is an imported figure of common law, that beyond the general system of compensation for eviction or hidden defects existing in Spanish law, It aims to guarantee the buyer repairing the damage that would occur as a result of the materialization of certain risks or claim by a third.
Its objective is not covering breach of contract, but avoid the harm that would occur to the buyer in the event of certain contingencies occur.
It is not that the vendor has withheld information or was "inaccurate" to express its manifestations in the contract. For his part, the successful purchaser its "due diligence".
Both parties have fulfilled their obligations diligently. However, there is the possibility of agreeing to pay compensation in the event that a particular event occurs, that would have lowered the price the buyer agreed to pay.
The most common cases are usually given by tax contingencies, legal or contractual. A tax record may be a significant amount. Also the estimation or estoppel can modify the price to be paid buyer. Even the renewal or termination of contract can have great importance for the buyer of a company.
How to articulate the functioning of "indemnities" it depends critical of the parties and their bargaining power: The buyer will try to obtain the broadest possible coverage including both principal and interest suffered damage and costs related to the management or claim. If you can get the “indemnities” reduce the price to pay, and are paid upon completion of certain periods without the event occurs, substantially increase the return on your investment.
The seller could make full payment is demanding the deposit of that amount in an account "escrow" or guarantees (bank or other) By himself.
In each case, there will be a customized solution.
As to the form, they can be part of the contract of sale of the company, but sometimes they included in other documents in order to keep the confidentiality.
In summary, the “indemnities” will enable the purchaser adjust the price when buying a business, in the case of an event that would occur reduced.