After closing, the purchase agreement is the whole game. In 2025, 92% of deals made indemnification the exclusive remedy, with equitable remedies and fraud the only common exceptions. The architecture you negotiated only matters when claims actually get made, and when they do, it plays out exactly as written.
When a claim lands
Who defends: 89% of 2025 deals let the sellers, acting through their representative, control the defense of third-party claims. But 38% of those require the sellers to acknowledge liability first, a meaningful concession most founders don’t realize they’re making.
Who can settle: 90% of agreements limit the defending party’s ability to settle. 41% require the other side’s written consent, 48% require the relief to be money damages only and 62% require a complete release. Together these decide whether your representative can settle without a buyer veto.
What’s recoverable: 74% of 2025 deals expressly excluded diminution-in-value damages, 73% excluded punitive damages, 55% excluded consequential damages and 22% excluded lost profits. 84% were silent on multiple-based damages. Where diminution in value is excluded, a $1 million breach generally costs the seller $1 million, not the $10 million of enterprise value a buyer could argue it destroyed.
Where the money comes from: 54% of 2025 recoveries came from escrow; the rest came from holdbacks, R&W insurance alone, clawbacks and earnout setoffs. On insured deals, losses usually run through the retention first, often funded partly from escrow, then the policy, with direct claims against sellers mostly reserved for fundamental reps and fraud. On uninsured deals, escrow is usually the first stop.
The tax indemnity
86% of 2025 deals included a stand-alone tax indemnity, making it the most common stand-alone indemnity in M&A, ahead of closing certificate accuracy at 75% and capitalization at 70%. Tax has its own cap, its own survival period and its own procedures, and it’s the indemnity most likely to actually be invoked.
Pre-closing taxes: Sellers indemnify for all taxes attributable to pre-closing periods: income, sales and use, payroll, property and gross receipts. 78% of 2025 deals had tax reps survive to the statute of limitations, typically plus 60 to 90 days, and the cap is either unlimited or separate from the general cap.
Straddle periods: For a tax period that starts before closing and ends after it, the allocation is contractual. Income taxes are usually allocated on a closing-of-the-books basis and property taxes are prorated by days. Define the method in the agreement, because the difference can be material.
Transfer taxes and refunds: Taxes triggered by the deal itself are allocated by contract and vary state by state. Refunds for pre-closing periods belong to the sellers only if you negotiate it; otherwise they default to the buyer, which owns the company that receives the check.
R&W insurance covers some pre-closing tax exposure, but it excludes known issues, transfer taxes and positions identified in diligence. In most deals the pre-closing tax indemnity sits outside the policy and stays with the sellers. The IRS doesn’t care about your contractual survival period; tax exposure runs on its own clock.
The Stockholder Representative
Most founders never read these provisions. Then a notice lands two years after closing, and the representative, not the founders, decides what to do with it.
The representative is the sellers’ counterparty for everything after closing: indemnity claims, working capital disputes, tax matters, escrow releases, consents and amendments. Its authority is plenary and binds every selling stockholder, and it can settle, release, escalate or pay without further consent.
Who serves gets decided in the merger agreement, usually before founders are paying attention. The lead VC is often conflicted, and a founder often lacks the capacity. A professional firm such as SRS Acquiom or Fortis is now market for any deal of meaningful size, and it’s what I recommend.
Fund the role properly. 2025 expense funds averaged about $256,000 for deals without earnouts, $281,000 with earnouts, $549,000 for life sciences deals with milestones and $727,000 to $1.3 million for deals over $750 million. Unused money is returned pro rata, but an underfunded representative can run out mid-dispute, exactly when you need it most.
Two more details matter. Sell-side attorney-client privilege sat with the representative in 39% of 2025 deals, with the selling stockholders in 21% and jointly in 17%. And the representative should be indemnified by the selling stockholders, not the buyer, for anything short of bad faith or willful misconduct; without that protection, it won’t act decisively when it needs to.
Pick the Stockholder Representative with the same care you pick your M&A lawyer. It will be running your deal long after your lawyer is gone.
Ahmed Hasan is the founder and CEO of Venture Bridge Law, a corporate and M&A boutique. This article is general information, not legal advice.