Series 79 practice questionmediumEarnouts
When structuring an earnout, which approach best reduces disputes between buyer and seller over the achievement of milestones?
- AAllowing the buyer sole discretion to define performance metrics
- BTying payment to the buyer’s consolidated financial results
- CRequiring the seller’s managers to remain post-closing
- DSpecifying objective, detailed formulas and definitions for milestone calculations in the agreement✓ Correct answer
Explanation
Why D — Specifying objective, detailed formulas and definitions for milestone calculations in the agreement
Precise definitions minimize ambiguity and potential disputes. The trap is assuming seller retention or buyer discretion alone will reduce disagreements.
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