A earn out agreement is a legal agreement or contract which is made when a company is being sold. Under such agreements, the seller of the company receives a certain amount of the purchase price upfront and the remaining additional funds over a period of time. A earn out can be structured into several different methods or ways. These types of agreements are generally drafted by taking consultation from a legal expert.
Earn out agreements are drafted because usually, there is a dispute about the price of the company being sold. Hence to reach a mutual understanding, earn out agreements prove to be helpful. These agreements must have a set of terms and conditions which have to be elaborately mentioned with giving a specified definition of each of the point.
Earn out agreements also consist of the details of the involved parties along with the important dates such as date of commencement and date of termination of agreement.
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