Indemnification

A contractual obligation by one party to compensate the other for specified losses, damages, or legal costs that arise from defined circumstances, typically used to allocate risk between contracting parties.

Indemnification clauses determine who pays when something goes wrong. Founders who sign contracts with broad indemnification requirements may find themselves financially liable for problems caused by the other party. Understanding and negotiating these clauses protects against disproportionate risk.

A founder signs a partnership agreement with a broad indemnification clause requiring her to cover all losses the partner suffers if her content is found to infringe third-party rights. Her solicitor advises limiting this to damages caused by her direct actions, narrowing her liability significantly.