Filing Objections to Buyer Prepared Post Closing Earn out Statements
File post-closing earn-out objections within strict review windows using itemized, quantified accounting adjustments that satisfy contractual materiality thresholds.
De Minimis Floor
Meaning
Contractual thresholds in transaction agreements prevent a party from making indemnity claims for minor losses until the loss exceeds a specified amount. The de minimis floor represents the minimum value that an individual claim must reach before it can be added to the overall claim basket. This mechanism prevents buyers from harassing sellers with trivial claims after the transaction completes.
Claims Management
Under the terms of the acquisition agreement, any claim that falls below this level is completely disregarded. Only those claims that exceed the de minimis floor are accumulated toward the larger aggregate threshold known as the basket or deductible. This distinction ensures that both parties focus on material issues that affect the valuation of the target.
Setting Thresholds
Setting the floor requires a negotiation between the buyer and the seller based on the enterprise value of the company. In mid-market deals, the de minimis floor is often set at a small percentage of the purchase price, such as one-tenth of one percent. This rate provides a clear boundary that reduces the frequency of minor disputes.
Document Drafting
Corporate lawyers include this limit in the indemnification section of the share purchase agreement. It acts as a shield for the seller against post-closing nuisance claims.