Buyout Agreement Payment Terms
When you prepare buyout agreement, one of the important financial details is the payment terms. It is used to control when and how a buyer should make payments to the seller, and it can make or break a deal so easily because of its sensitivity. Reasonable payment options can make the entire buyout process and decision easy and affordable for the new owner of the company.
Payment terms can also affect the buyout price, for both buyer and seller's perspective. If the terms are favorable to the buyer, for example a low-interest installment plan over the five years, seller can offer higher final price. In the meanwhile, if the payment options and terms are not favorable for the buyer side, such as immediate lump sum cash payment upon the closing, then the buyer will try to lower the final price for the deal.
As a payment plan, it is possible to coordinate it with disability life insurance policy. If you agree, your payments can be tied to the insurance payouts, but you will need to schedule insurance policy's payout plan in advance.
Meeting the interests of buyer and seller
As it is important factor on the successful closure of the buyout agreement, payment terms should be well considered and reviewed by both buyer and seller. Usually seller wants to get the most out of the buyout price deal, therefore prompt payment plan is preferred on the seller side. On the other hands, buyer will want to have an option of making monthly payment over a longer period of time with lower interest rate.
But no terms are important than completion of successful buyout exercise in final. Both buyer and seller want to make a fair deal, with reasonable terms within legal boundaries. If the payment options are beyond buyer's financial capabilities, then seller might lose a good chance of promising new ownership which could have been possible without such a harsh guideline of payment terms. Even though the successor company was able to buy the ownership interest, it might put them in a situation where they are not able to continue normal business operation due to high amount of principal and interest payment schedules which was set prior to final closing.
A good example of balanced payment option is to request the buyer to pay down lump sum of down payment up front, and have the seller carry out 20 to 30 percent of the purchase price over the 3 to 5 years. In this case you can choose to fund the buyout with your life or disability insurance, which will be available immediately and make the initial funding process quicker.
It is not possible for anyone to forecast which payment option is best for both parties in a particular situation, but considering fair payment plan ahead of time will give you a better negotiation position when an actual buyout process starts.
If you want to prepare Buyout Agreement for your company, make sure that you have written legal forms signed. Any signed document is legally binding, so speak to specialist before you begin any document processing. For easy downloadable forms, go online and search for Free Legal Forms and you should be able to find many general legal forms and documents such as bill of sale, power of attorney and corporation legal forms.