Is an indemnity cap usually tied to the full purchase price or just part of it?

Both approaches show up in Ontario business sales, and there is no legal rule requiring either — the cap is simply whatever the buyer and seller negotiate and write into the purchase agreement. Some deals tie the general indemnity cap to a percentage of the full purchase price, others cap it at a smaller fixed amount unrelated to the price, and some tie it specifically to the amount held in escrow or a holdback rather than the price at all.

It is also common to see a tiered structure, where general representations carry a lower cap, sometimes a percentage of price or the escrowed amount, while fundamental representations and specific indemnities are capped at the full purchase price or left uncapped entirely. Because these figures are genuinely negotiated deal terms rather than anything fixed by law, neither party should assume a particular structure is "standard" going into negotiations. Working through the cap structure carefully as part of the broader indemnity package, rather than accepting a first draft's approach, is worth the time with a Treadstone business lawyer.