When selling a business, consider whether post-sale compensation should be negotiated into the purchase agreement. If you’re a principal of the selling business, you may be called upon to help the Buyer in the post-sale transition, or may be asked to consult with the company in ongoing client or company matters. In those circumstances, negotiate post-sale compensation into the purchase agreement to ensure you receive proper value for your time and efforts.
I recently served as Seller’s counsel for an Indianapolis internet-based start-up in its sale of the bulk of its assets to a New York competitor. One negotiation point was post-sale compensation paid to the principal of the Seller over a few years for transition related work resulting from the sale. In other words, if the principal of the Seller is called upon to assist the Buyer in transition or ongoing client matters, the Seller receives payment for his time.
Post-sale compensation can be hugely important. Oftentimes, Buyers need the assistance and expertise of the Seller’s management team or key players in the business. It’s important to include such considerations in the purchase agreement in advance of closing. If absent from the purchase agreement, the well-meaning Seller may find that the sale results in a large drain of the person’s time when pursuing new opportunities or engaging in new ventures.
Consult with a deal lawyer about your options – be it a basket of money paid up front the Seller principal can draw upon, or a consulting arrangement paid on a monthly basis. The goal, no matter the path taken, is to ensure that the Seller is compensated for his or her time after the date of closing.