Series 79 practice questionmediumEarnouts
When structuring an earnout in an acquisition agreement, which of the following can help reduce post-closing disputes?
- AClearly defined financial metrics and measurement periods in the contract✓ Correct answer
- BLeaving earnout targets subject to later negotiation
- CAllowing the seller to manage the business indefinitely
- DTying earnout payments solely to discretionary board decisions
Explanation
Why A — Clearly defined financial metrics and measurement periods in the contract
Clearly defined metrics and periods reduce ambiguity and legal disputes. Vague targets or subjective criteria often result in disagreements after closing, so precision is key.
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