Asset Purchase Agreement With Earn Out Provision In Georgia
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If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
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FAQ
Cons of Earn-Out Payments Uncertainty: One of the main drawbacks of an earn-out payment is the uncertainty involved. Since the payment is contingent upon the future performance of the business, there is no guarantee that the seller will receive the additional payments they are hoping for.
The typical earnout provision entitles the seller to receive further payments if the target, post-closing, meets prescribed benchmarks. These benchmarks are usually, but not always, financial based.
In an earn-out, the purchaser agrees to make post-closing payments for a period of time contingent on the performance of the business or specific property ing to certain thresholds. These thresholds are commonly based on financial metrics, such as gross revenue or net profit over a period of time.
The biggest difference is that an SPA is the sale of all shares, and an APA is the sale of selected assets. Therefore, they are both different transactions and have different procedures.
By way of a simple example, sellers might receive a multiple of 5x for every one dollar that EBITDA is exceeded over a certain amount (e.g. $2 million) but nothing if it is less than $2 million. So, if the business achieved EBITDA of $2.3 million for the period, the earnout would be $1.5 million ($300,000 x 5).
First and foremost, it is typically the buyer's responsibility — not yours as the seller — to draft the Definitive Agreement. This will not begin until both the buyer and the seller sign a Letter of Intent indicating their intention to buy/sell the business.
