Indemnity Clause In Shareholders Agreement

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Published on: September 23, 2021

The seller`s liability in the context of a SPA is not unlimited. The parties contain clauses limiting the seller`s liability, in particular in time and time. The limitation of liability depends on the negotiations between the parties. Exemption is a person`s promise to make good any loss, liability or damage caused to another person as a result of an act or omission of a person or third party or an event. Section 124 of the Indian Contract Act, 1872 (Contract Act) defines a “contract for compensation” as a contract by which one party promises to protect the other from losses suffered by the conduct of the promiser himself or by the conduct of another person. However, this is not an exhaustive definition of indemnification and, therefore, indemnification clauses in share purchase agreements (SPAs) may, according to common law principles, have a broader scope than that provided for in the Contracts Act. Before hiring a contractor, a construction company may require contractors to sign a compensation agreement to protect against claims in the event of a contractor`s fault. (Learn more about the 3 types of indemnification clauses in the construction sector) It is generally agreed by the parties that the seller`s liability under the SPA is exclusively regulated by the SPA and that the buyer can only claim compensation from the seller on the basis of the provisions of the SPA and that no other recourse is available under the laws in force. However, it should be borne in mind that existing laws may not allow such exclusion and that the mandatory rules of such applicable laws may apply despite the agreement of the parties. As a general rule, ASAs include a compensation clause for managing the risk of contract losses. These are often hotly discussed and negotiated in ASAs and are relevant to sellers who wish to limit future debts, as well as to buyers wishing to hedge against losses or liabilities resulting primarily from inaccuracies in insurance made by the seller during the sale or from an event that could have occurred under the seller`s property. or because of an event that may occur at the end of the sale, not necessarily based on the seller`s behavior. Given the conflicting interests of both parties and the profound impact of the compensation rules on the profitability of the transaction, indemnification clauses for merger and investment transactions are essential.

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