Indemnity Basket
Also known as: Basket, Deductible Basket, Tipping Basket
Definition
An indemnity basket is a negotiated threshold for claims after closing. In many deals, buyers cannot recover losses from certain breaches until claims exceed the basket. Basket type, cap, survival period, exclusions, and escrow all affect the real risk allocation.
The basket is not legal boilerplate. It changes how diligence findings convert into seller risk after close.
Sellers should understand which issues are likely to be handled through price, escrow, indemnity, special indemnity, closing condition, or walk-away risk before they treat the LOI price as real.
Related terms
- Earnout — A contingent purchase-price mechanism that pays sellers after close if agreed revenue, EBITDA, retention, or operational milestones are achieved.
- Letter of Intent (LOI) — A non-binding transaction proposal that sets price, structure, exclusivity, diligence scope, and major conditions before definitive agreements.
- Net Working Capital — Current operating assets minus current operating liabilities. In M&A, the working-capital peg can materially change cash delivered at close.
Where this gets applied
- Financial Infrastructure — ARR waterfalls, deferred-revenue rules, board-pack standardization, FP&A architecture.
- Exit Readiness — Pre-LOI cleanup. Financial reporting normalization, contract hygiene, IP assignment review, customer-concentration mitigation.