Glossary
Indemnity
On this page3 sections
What it is
An indemnity is a contractual promise by the seller to compensate you for a defined loss — unpaid taxes, a specific piece of litigation, an environmental condition, a breach of a representation.
Indemnities come in two flavours worth distinguishing. General indemnities back the representations and warranties. Specific indemnities cover a named problem that diligence actually found, usually with their own cap and their own survival period.
The question that determines its value
Not what it says. Who the seller will be, and what they will be worth, on the day you need to claim.
Most New York small businesses are sold by someone retiring. The proceeds get distributed. The selling entity may be wound up. Two years later, an indemnity is a legal right against a person who has retired, moved, and spent a good deal of the money. That is not a comment on anyone's honesty — most sellers intend to honour what they sign. It is about what remains reachable.
Making it real
An indemnity worth having is usually one with something behind it:
- A holdback — price you have not paid.
- An escrow — a holdback held by a third party under agreed release terms.
- A right of offset against a seller note, which on many deals is the only seller money still in reach.
And note where an indemnity is the wrong instrument entirely: statutory liabilities that attach to you as purchaser are not solved by a promise. File the bulk-sale notice [1] and then decide what to hold back. See escrow, holdbacks and indemnities.
Frequently asked questions
Is an indemnity enough protection on its own?
Rarely. An indemnity is a promise, and it is worth exactly what the seller is able and willing to pay on the day you call it. Most New York small businesses are sold by someone retiring, the proceeds get distributed, and the selling entity may be wound up. Two years later you have a legal right against a diminishing target.
What is the difference between a general and a specific indemnity?
A general indemnity backs the representations and warranties as a whole. A specific indemnity covers a named problem that diligence actually found, usually with its own cap and survival period. Anything you have already identified should get its own specific indemnity rather than being absorbed into the general one.
Does an indemnity protect me from successor liability?
Not reliably, and this is where buyers get caught. A statutory liability that attaches to you as purchaser is not solved by a promise from the seller. For New York sales tax the answer is to file the bulk-sale notice at least 10 days before taking possession, and then decide separately what to hold back.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 NYS Department of Taxation and Finance. Tax Bulletin ST-360: Purchasers' Obligations to Pay Sales Taxes (Bulk Sales). https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/purchasers_obligations_to_pay_sales_taxes.htm
Educational only — not legal, tax, lending, or investment advice. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. See the editorial policy and methodology for how sourcing and review work.