Global Private M&A Guide - Limited External Content

People's Republic of China

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Limitations on liability
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Limitations on liability Start Comparison
What is the common cap amount (as a percentage of purchase price)?

Frequency/market practice: The buyer will ask for 100% but it is possible to negotiate down. It ranges from 10% to 100% with different caps commonly applied to fundamental warranties versus business warranties.

Does the cap (and other liability limitations) apply to the whole agreement or just warranties (or particular terms)?

Frequency/market practice: Both are seen regularly.

What are the common exceptions to the cap?

Frequency/market practice: Key warranties are often excepted (e.g., title, capitalization and authority). Often tax and specific areas of concern, sometimes with specific higher caps. Separate caps can be negotiated.

Is a deductible or basket common?

Frequency/market practice: Sometimes. It is becoming more accepted in the market.

Is a de minimis common?

Frequency/market practice: Sometimes. It is becoming more accepted in the market.

How long does seller liability survive?

Frequency/market practice: A general survival of 18-24 months is common. Tax and fundamental warranties are commonly longer than general warranties.

Are there any common carve-outs from limitation on seller liability (e.g., fraud, tax, key warranties)?

Frequency/market practice: It is common to carve out fraud.

Is warranty insurance common?

Frequency/market practice: It is becoming more popular in recent years, especially in global deals involving China and large private equity deals in China.

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