Example: $2.5M sale with a 10% escrow for 18 months (fictional)
| Event | Escrow balance | Paid to you |
|---|---|---|
| Closing | $250,000 | $2,250,000 at close |
| Month 9: $40,000 claim for undisclosed sales tax | $210,000 | - |
| Month 18: survival period ends, no open claims | $0 | $210,000 released |
Indemnity terms that matter
- Cap: the most you can owe for ordinary rep breaches - ideally the escrow amount.
- Basket (deductible): claims below it are absorbed by the buyer.
- Survival period: how long reps last; fundamental reps (title, authority, taxes) often last longer.
- Knowledge qualifiers and materiality scrapes: small words that shift a lot of risk.
- Sandbagging: can the buyer claim for a problem it knew about before closing?
Reduce claims before you sign
Most claims come from taxes, customer contracts, employee classification and undisclosed liabilities. Disclose problems in the disclosure schedule instead of warranting them away. State tax clearance (for example New York’s bulk-sale filing or California’s CDTFA certificate) reduces the most common post-closing tax claim - see state rules.
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Frequently asked questions
What is an escrow holdback in a business sale?
A portion of the price, held by an escrow agent or the buyer, available to pay indemnity claims for a set period after closing.
What are reps and warranties?
Statements of fact you make about the business in the purchase agreement - financials, taxes, licenses, contracts - which the buyer can claim against if untrue.
How do I get the escrow released?
Automatically at the end of the survival period if no claims are pending; negotiate staged releases and a clear dispute process.
Sources
- NY Department of Taxation and Finance - Bulk sales (accessed 2026-09-23)
- CDTFA - Revenue and Taxation Code 6811 (accessed 2026-09-23)