Indemnification Cap
The dollar ceiling on what the seller has to pay for reps and warranties breaches in an SMB acquisition.
- General reps cap as percent of purchase price
- Fundamental reps cap (should be 100% or uncapped)
- Fraud and willful misconduct carve-outs
- Whether cap is inclusive or exclusive of defense costs
If this clause already feels aggressive in isolation, upload the full contract and see how it combines with payment terms, liabilities, and exit rights.
Analyze My ContractWhat this clause actually does
The indemnification cap is the maximum total liability the seller has for breaches of reps and warranties. In SMB deals it typically ranges from 10% to 25% of purchase price for general reps, with fundamental reps capped at 100% of purchase price (or uncapped). Caps that are too low make warranty insurance and survival periods nearly worthless.
Why people get burned by this clause
On a $3M deal with a 10% cap, the most you can recover for any breach (other than fundamental reps) is $300K. If the actual undisclosed liability is $800K, you eat the $500K difference.
What should make you slow down
- Cap below 10% of purchase price for general reps
- Fundamental reps capped at less than 100% of purchase price
- No carve-out for fraud, willful misconduct, or intentional misrepresentation
- Cap includes attorney fees and defense costs (eats recovery)
- Single cap covers both general and fundamental reps
Where you usually see it
- Asset purchase agreements
- Stock purchase agreements
What the platform checks in the live contract
- General reps cap as percent of purchase price
- Fundamental reps cap (should be 100% or uncapped)
- Fraud and willful misconduct carve-outs
- Whether cap is inclusive or exclusive of defense costs
- Stacking with escrow holdback dollars
What stronger language usually looks like
- General reps capped at 15% to 25% of purchase price
- Fundamental reps capped at 100% or uncapped
- Fraud carve-out is uncapped
- Cap and escrow holdback are separate dollars
Definitions worth opening next
Articles that go deeper
Cap level matters less than what is excluded from the cap. Fundamental reps and fraud must be uncapped or near it.
See how this clause behaves in the real contract.
The clause library gives you judgment. The full review shows how this clause combines with the rest of the agreement, then quotes the exact language, scores the risk, and explains what to push on next.