Hold Harmless Agreements and Holdback Provisions

By Guest Contributor Gregory A. May, Esq. www.kieselandmay.com


So you have made the decision to purchase a business, signed the contract, reviewed the financials and performed your due diligence, now what’s to protect you from Seller misrepresentations? That is, what if all of those financials were false, and the business is not what it seems?


The answer should be two-part. First, I believe that it is important to include a hold harmless and indemnity agreement in all closing packages. This document provides that the Seller shall be held responsible for any damage caused by misrepresentations in the status and health of the business. It often provides a mechanism and timeline for curing disputes, and possibly a method for determining damages, which should include attorneys’ fees.


The second part of the answer is the hold-back agreement, which should be outlined in your purchase contract. The hold-back provision will provide that the closing attorney or escrow agent will hold back a portion of the Seller’s proceeds for a period of time (normally somewhere between a month and year depending on the size of the transaction). If there are no issues with the business, then the money is released and the parties go merrily on their respective ways. However, should an issue come up within the hold-back period, then the buyer has the option of raising a claim. If a claim is raised, then the parties must resolve the issue according to the terms of the contract.


By adding these extra provisions, you may encourage the Seller to be open and honest in their disclosures, and avoid unnecessary litigation and attorneys’ fees. However, should the need for litigation arise, do not hesitate to contact a legal professional.


Happy negotiating and good luck in your new business!


*This communication is for informational purposes only and shall not be deemed formal legal advice or the formation of an attorney-client relationship.


greg may

Gregory A. May, Esq.
Kiesel and May, Attorneys at Law
2121 McGregor Boulevard
Fort Myers, Florida 33901
T: (239) 334-1800
F: (239) 332-3927


Michael Monnot

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907


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Michael Monnot


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