Stay out of the beartraps

When structuring warranty and indemnity payments, don’t let Zim Properties catch you out, explains Alistair Godwin

Warranties and indemnities are a fundamental part of the suite of protections that purchasers require in a private company acquisition. They provide the means by which purchasers can obtain financial coverage for unexpected liabilities (tax or otherwise) of the company that is being acquired. While it may be tempting to think that the warranties and indemnities are just a matter of legal drafting, in fact they do need to be carefully structured so as to avoid any unintended tax consequences. This article discusses some common beartraps seen in practice, as well as possible solutions.