How Do I, as a Seller, Protect Myself From Post-Closing Claims From the Buyer?

Selling your business can be the culmination of years of work, but your responsibilities often don’t end when the deal closes. Many business owners are surprised to learn that buyers can still make claims after closing, alleging breaches of certain representations, warranties, or covenants. These post-closing disputes can threaten your sale proceeds and peace of mind.

At Doggett Law Firm, we help business owners across Texas protect themselves before, during, and after the sale of their company. Based in San Antonio, we combine the depth of large-firm deal experience with a lower cost structure and a practical, client-focused approach. Our firm’s AV Rating from Martindale-Hubbell reflects our reputation for integrity and trusted counsel in complex M&A transactions.

If you’re selling your business, here’s how to minimize your exposure to post-closing claims and protect the value of your deal.

Understanding Post-Closing Claims

Post-closing claims usually arise when a buyer alleges that the seller failed to meet certain obligations or that the information provided during the sale was inaccurate or incomplete. Common examples include:

• Breach of representations or warranties: The buyer claims something in the purchase agreement (like “no undisclosed liabilities” or “financial statements are accurate”) turned out to be false.
• Indemnification claims: The buyer seeks reimbursement for losses caused by the seller’s actions before closing.
• Working capital adjustments: Disputes over how much working capital was delivered at closing compared to the agreed targets.
• Tax or compliance issues: The buyer discovers unpaid taxes, regulatory violations, or environmental liabilities.

Even when you act in good faith, misunderstandings or incomplete disclosures can trigger costly disputes. Fortunately, careful planning and precise drafting can dramatically reduce your risk.

Step 1: Conduct Your Own Pre-Sale Due Diligence

One of the best ways to prevent post-closing claims is to identify and address potential issues before the buyer does. Conducting seller-side due diligence allows you to review your company’s financial statements, contracts, tax records, employee agreements, and compliance filings with the same level of scrutiny the buyer will apply.

This proactive approach helps uncover hidden liabilities, clarify ambiguities, and prepare accurate disclosures. For example, if an old vendor dispute exists or a customer contract is expiring, you can disclose it in writing so the buyer can’t later claim it was hidden. On the positive side, if a family member is paid excessive compensation, your historic financials and projections should be adjusted (“normalized”), resulting in higher earnings and a bigger price. The time to make these adjustments is before diligence begins.

At Doggett Law Firm, we often help sellers perform this internal audit before listing their company. It’s an investment that saves time, strengthens credibility, and prevents post-sale surprises.

Step 2: Draft Accurate and Limited Representations and Warranties

Representations and warranties (often called “reps and warranties”) are the statements you make in the purchase agreement about your business’s condition. They cover everything from asset ownership to financial statement accuracy and the absence of legal disputes.

Buyers use these clauses to protect themselves, but overly broad or unrealistic language can expose sellers to unnecessary risk. For instance, agreeing to language that says “the seller has complied with all laws” is too absolute; it’s better to qualify it with “to the seller’s knowledge” or specify a reasonable timeframe.

An experienced M&A attorney can help you negotiate fair, accurate, and clearly defined representations that reflect what you actually know and can control. Precision here is key; vague or overly sweeping language is a common trigger for post-closing claims.

Step 3: Negotiate Strong Indemnification Limits

Indemnification provisions are the buyer’s primary tool for recovering losses after closing. They determine when and how a buyer can make a claim against you. To protect yourself, your attorney should negotiate limits such as:

• Time limits: Indemnity obligations typically expire 12 to 24 months after closing, except for specific items like taxes or fraud.
• Monetary caps: Setting a maximum liability amount, often a percentage of the purchase price, prevents unlimited exposure.
• Deductibles or “baskets”: The buyer must absorb small losses before making a claim, similar to an insurance deductible.
• Exclusive remedies: The contract should specify that indemnification is the buyer’s only recourse, preventing them from pursuing other legal actions for the same issue, bypassing the caps and deductibles.

These provisions create predictability and finality, ensuring you can move on from the sale with confidence.

Step 4: Use Escrows and Holdbacks Wisely

Many deals include an escrow or holdback, a portion of the purchase price held for a set period to cover potential post-closing claims. While these funds provide the buyer with security, they can also protect you. By agreeing to a fixed escrow amount and clear release conditions, you limit the buyer’s ability to claim additional funds later.

Typical escrows last 12 to 18 months, after which any remaining funds are released to you if no valid claims are pending. Your attorney can ensure the escrow terms are narrowly defined and administered by a neutral third party.

Step 5: Make Thorough and Organized Disclosures

Every purchase agreement includes a disclosure schedule, which lists exceptions or clarifications to your representations and warranties. This is your opportunity to disclose anything that might later become an issue, even if it seems minor.

For example, if you’re aware of an ongoing customer negotiation, a pending employee claim, or an outdated permit, disclosing it now protects you later. A properly disclosed issue cannot form the basis for a post-closing claim.

The key is completeness and clarity. Your M&A lawyer should organize the disclosure schedules carefully to ensure they align with the purchase agreement and leave no room for misinterpretation. Do not wait to start until right before signing the agreement – you’ll risk missing disclosures and delaying closing.

Step 6: Consider Representations and Warranties (R&W) Insurance

In many mid-market transactions, sellers and buyers use representations and warranties insurance to transfer post-closing risk to an insurer. This policy covers losses arising from breaches of representations or warranties, reducing the need for large escrows or indemnity exposure.

R&W insurance is increasingly common in 2025, particularly for targets with at least $3 million in EBITA or purchase price above $15 million. It allows both sides to close faster and with greater peace of mind.  For smaller deals, there are new insurance products (e.g., Transaction Liability Private Enterprise) available that may be cost effective.

Step 7: Work With an Experienced M&A Attorney

Ultimately, the best protection against post-closing claims is skilled legal guidance. Every clause in your purchase agreement, from how claims are noticed to how disputes are resolved, affects your exposure. An M&A attorney ensures you understand each obligation, negotiates favorable terms, and helps you finalize a deal that truly closes when it should close, and be paid and stay paid.

At Doggett Law Firm, we represent business owners across Texas, helping them exit safely and profitably. We combine practical deal experience with careful legal drafting to protect what matters most, the value you’ve built over years of effort.

Call (210) 241-5755 or contact us online to discuss how to protect yourself from post-closing claims and safeguard your hard-earned sale.