Who controls the outcome after you no longer own the company?
An earnout can depend on decisions that move to the buyer at closing.
At closing, control usually transfers to the buyer. Under an earnout, part of the seller’s purchase price may still depend on how the business performs after that transfer.
That creates the control problem. The buyer may set budgets, approve hires, allocate corporate costs, combine operations, change suppliers, redirect leads, or discontinue products. Each decision may be commercially reasonable for the buyer and still reduce the seller’s earnout.
Broad promises to operate in the ordinary course are rarely enough. The parties should identify the decisions most likely to affect the agreed metric and create practical guardrails. Examples may include consistent accounting policies, limits on specified allocations, rules for transferred customers, restrictions on diverting opportunities, and treatment of acquisitions or disposals.
Information rights are equally important. The seller should receive timely calculations and enough supporting detail to understand them. The agreement should provide an objection period, access to relevant records, and a defined process for resolving accounting disagreements.
No covenant can preserve every pre-closing practice. Buyers need room to own and operate what they purchased. If the seller requires extensive control rights to make an earnout fair, that may indicate the contingent structure is carrying too much of the price.
The practical goal is a metric the buyer can manage toward honestly and the seller can verify without running the company from the sidelines.