Understanding seller liability in acquisitions: Joint, several, and everything in between

This article, part of our series on acquisitions, explains the different types of seller liability and how they affect a buyer’s ability to recover losses. See our guide to share sales here, asset sales here, and the differences between asset and share purchases here.

Seller liability in acquisition transactions

In a typical share sale, the buyer acquires the target company’s shares, and with them, all of its assets, rights, and liabilities. Conversely, in a business/asset sale, the buyer acquires specific assets and only those liabilities it agrees to take on.

In each case, the principle of caveat emptor (buyer beware) will apply, and there are no automatic statutory or common law protections for the liabilities the buyer may inherit. To address this risk, buyers generally negotiate warranty, indemnity and tax coverage in the acquisition agreement. Find out more about these protections here.

When multiple sellers are involved, assigning liability among them requires careful drafting. Below are the three main types of liability structures used in share and asset sales.

Types of seller liability and example scenarios

Glossary

• Claim: for the purposes of this article, a a claim by the buyer against the sellers for breach of a warranty, under the indemnity clause or under the tax covenant.
• Contribution: Money a seller who overpays can reclaim from co-sellers after satisfying a claim by a buyer.
• Disclosure Letter: A letter from the sellers to the buyer where they qualify the warranties given in an acquisition document to the extent they are not true. You can read more about disclosure letters here.

Quick comparison chart

Key takeaways 

• Buyer protection: Joint and several liability is the most buyer-friendly, enabling full recovery from any seller and avoiding joinder issues. 

• Litigation practicalities: Pure joint liability can complicate claims because all sellers must be sued together. 

• Recovery limits: Several liability aids targeting individual sellers, but caps recovery at each seller’s share. 

Practical drafting tips

• Be explicit: State the intended liability structure expressly in the acquisition agreement to avoid disputes. Use clear words to state “liability is joint and several” (or “several only”) and avoid ambiguous formulations. 

• Align with disclosure: If the sellers jointly prepare a disclosure letter, make sure the chosen liability structure is consistent with how disclosures are made and how notification of claims is  handled. 

• Contribution/back-to-back: If sellers accept joint and several liability in the acquisition agreement, include a contribution mechanism between sellers (usually in a separate deed of contribution). 

• Service: If the sellers are jointly liable (not severally), the buyer must sue all of them together. To avoid delays or complications in litigation, the agreement should include clauses requiring sellers to cooperate and accept service of legal proceedings. This helps prevent procedural deadlock if one seller is unresponsive or difficult to reach. 

Conclusion 

Understanding the differences between joint, several, and joint and several liability is important when negotiating share and asset sales. Each liability model affects how risk is shared, how claims are enforced, and how complex the legal process may be. Buyers typically favour joint and several liability for its flexibility and stronger recovery prospects, while sellers may seek to limit exposure through several liability. 

For tailored allocation of risk and clear enforcement mechanics, contact our corporate & commercial team for advice on structuring seller liability and drafting contribution arrangements.