Indemnification

A contractual promise by one party to cover certain losses or legal costs the other suffers, for example if a product infringes a third party's rights or a representation turns out false.

Why it matters

Indemnification clauses decide who bears the risk when something goes wrong, and they appear in customer, investor, and acquisition contracts. Their scope and caps can carry real financial exposure, so they deserve close reading.

For example

A SaaS contract's indemnification clause says the vendor covers the customer's legal costs if the software is found to infringe someone else's patent.

Related terms

Term Sheet Regulatory Compliance Shareholders' Agreement

Go deeper

See how founders actually handle this on Co-founders, team and legal, part of the Starting Up hub.

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