Recent Answers to Earn Out Agreement Law Questions

Dolan W.

Answered Dec 27, 2024

Hello! My name is Dolan and thank you for using contractscounsel.com! This kind of agreement can be a great way to bridge the gap if you and the buyer have different views on your business's future value, but it’s not without its headaches. Basically, it lets the buyer pay part of the sale price later, depending on how the business performs. To keep things fair, you MUST have clear rules. I think for you need to nail down what performance targets you’re using such as revenue, profit, etc., and how they’ll be calculated. Be super specific to avoid arguments. Set a timeline for the earn-out, like 2–3 years, and agree on when you’ll get paid if targets are hit. You also need protection since the buyer will run the business after the sale. You don’t want them cutting corners or making decisions that could tank your payout. If the buyer mismanages things, you’re the one who loses. I think if you have some specific actions that the buyer promises to perform that you know helps the companies stay profitable or stay legally compliant (for example), including that in the agreement makes sense. You can ask for safeguards like minimum payments, say-so in major decisions, or money held in escrow. And, of course, make sure everything’s spelled out. We can draft these agreements for you here! Best of luck!