Legal Question in Business Law in California

Re: Earn-out agreement

Surely you had a lawyer draft or review the contract for the sale of your business. This is the lawyer to ask.

Re: Earn-out agreement

You may benefit from an attorney on retainer to deal with the divisions other issues as well. Contact me directly.

Re: Earn-out agreement

Earn-out agreements are notoriously difficult to draft and to carry out. If the conflict you describe is the only one, or the worst one, you are doing well. As a general rule, I'd try to avoid making, or trying to enforce, oral understandings modifying the written agreement. The division's health is not the real issue; the issue is "what is the agreement?" If you agreed to a formula, but one party is dissatisfied with the formula, whether there are good grounds for the dissatisfaction or not does not alter the agreement.

Re: Earn-out agreement

And, your question is??

If you and the company can't resolve it, hire an attorney to negotiate it for you; he will have more 'clout' than you alone. Worst case scenario is that could end up in litigation to determine and enforce your rights. You've now found out that your written contract was insufficient for the purpose. You do have one don't you?!

Re: Earn-out agreement

Well, I imagine there is certainly a way to keep track of the division's health without measuring business numbers in a way that reduces your compensation below what you expected, and maybe below what you contractually agreed-upon. I would be curious as to what authority would allow your salary to be included when the earn out provision excludes it. Now, on the practical matter of how to deal with this. I understand you have hesitancy about bringing a lawyer into this because lawyers have a reputation for complicating matters. However, if you are right you will need to stick up for and enforce your rights, otherwise the buyer will change the agreement as it suits him. If you have tried talking to him and it did not work, you may have an attorney write him a gentle note requesting cooperation. However, when I know your situation better I will more specifically be able to advise in a way that will help you.

Best,

Daniel Bakondi

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