Represented as a percentage of the purchase price, the maximum amount that the buyer can claim back from the seller. Usually, the cap amount is equal to the escrow account or setoff amount. Sometimes, however, the seller is willing to agree to a larger indemnification cap than the size of the escrow account, particularly for certain classes of claims. Sellers almost always get some cap on their indemnification. -Buying a small business, p.266 Continue reading Cap in Escrow & Setoffs

The mininum claim amount that is necessary for you (as the buyer) to be entitled to funds from the escrow account. The basket’s purpose is to eliminate disputes over very small claim amounts. As a buyer, however, you want it to be as small as possible so that you can have flexibility on the kinds of claims that come out of the escrow. On a 5M$ acquisition, the basket might be 25k or 50k. *When the total claims exceed that threshold, then the escrow account pays from the first dollar of claims. -Buying a small business, p.266 Continue reading Basket in Escrow & Setoffs

The end date of the period (following the sale of a business) during which claims can be made. After the survival period, any undisputed portion of the escrow is released to the seller and no new claims can be made. The survival period is usually at least long enough for the financial statements to be completed for the year in which the acquisition occured. -Buying a small business, p.266 Continue reading Survival period in Escrow & Setoffs