The shop that keeps the count
Two questions get asked as one: how much did I give, and is anybody counting. Only the second one decides what kind of giving it was, and what the giving does to the person on the other side of it.
insurance
Meaning
A risk transfer mechanism offsets the potential financial loss of an adverse event in exchange for a fee. For a departing founder, insurance provides a way to secure peace of mind against post-exit claims by transferring the liability to a third-party underwriter. This contract defines the boundary of personal financial risk after the handover.
Coverage Scope
Policies must be tailored to match the specific indemnities granted in the purchase agreement. When insurance is active, it covers representation breaches and tax disputes that might otherwise bankrupt the individual. The policy acts as a buffer between the operator and the legacy liabilities of the seat.
Premium Penalty
Procuring these policies requires a significant cash outlay from the proceeds of the sale. The cost of insurance is a direct deduction from the exit value, which means the founder pays a high price to sleep well at night. This financial drain is the trade-off for eliminating long-term uncertainty, as the buyer often insists on a comprehensive policy before they will agree to release the final tranche of funds from escrow.
Claim Exclusions
Underwriters write strict exclusions that leave certain liabilities with the founder. If fraud or known omissions are proved, the insurance policy will not pay out. This limitation means the operator cannot rely on policy coverage to excuse bad faith during negotiations.