Indemnity: contract clause
Indemnity clause for a contract, where one party will indemnify the other party for loss or damage. Alternative forms of clause depending on the context, including a mutual indemnity, a breach of contract indemnity and a third-party claim indemnity.
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When do I use this document?
- for an indemnity clause to be included in a contract
- for a contract governed by English law
What are the key features?
- alternative forms of indemnity wording:
- indemnity from one party in favour of the other party
- mutual indemnity from both parties in favour of the other
- indemnity for breach of the underlying contract
- indemnity for potential loss arising from a third party claim
- wording for conduct of third party claims
What else do I need to know?
An indemnity is a contractual undertaking given by one party (the indemnifier) in favour of another party (the indemnified party or beneficiary) under which the indemnifier agrees to pay to the indemnified party the amount of any loss or damage which the indemnified party suffers as a consequence of a specified event.
The specified event might be:
- the breach of contract by the indemnifier
- liability of the indemnified party to a third party in relation to a specified event or circumstance
- a claim by a third party for loss or damage caused by the indemnifier’s breach of contract
Unlike other contractual obligations (and depending on the wording of the indemnity), an indemnity is not subject to legal rules and limitations regarding to the foreseeability of loss or the remoteness of damages which can be recovered by the beneficiary. In addition, the beneficiary is not legally obliged to mitigate its loss.
As a result and in exchange for agreeing to give the indemnity, the indemnifier may require that the beneficiary takes certain actions in relation to a claim or event which might give rise to a claim under the indemnity being made. These actions include:
- the notification of a claim from a third party in relation to the indemnified obligation
- an obligation on the indemnified party to take action required by the indemnifier to defend a third party claim
- allowing the indemnifier to take legal action in the name of the indemnifier to defend the third party claim
When do I use this document?
- as a document to be delivered by a seller at closing of a Share Purchase Agreement
- when stamp duty is payable on the share transfer
- to enable the buyer to vote and exercise other share rights pending the registration of the share transfer
What are the key features?
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- suitable for an individual or corporate seller
- appointment of the buyer as the seller’s attorney
- grant of authority to the buyer to exercise all rights as the legal owner of the sale shares
- irrevocable appointment given by way of security
What else do I need to know?
Following the closing of a share sale transaction, the seller will remain the registered owner of the shares which have been sold until the buyer has paid the necessary stamp duty. This process can take a number of weeks. The transfer of the sale shares cannot be registered in the register of members of the target company until the stamp duty has been paid.
The buyer will want to be able to exercise all the rights as the owner of the sale shares notwithstanding that the seller remains the registered legal owner of the sale shares. To enable the buyer to do this, the buyer will usually require that the seller grants a power of attorney in favour of the buyer which enables the buyer to exercise the legal rights of ownership of the sale shares.
If a share transfer involves consideration exceeding £1,000, stamp duty will be payable to HMRC and HMRC will need to confirm that the stamp duty has been paid. This stamping process typically takes a few weeks and involves payment of the stamp duty and submission of the stock transfer by email to HMRC for HMRC to confirm the payment.
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Updated by a lawyer on 21/07/2025
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