Q. We read your recent question on earn out arrangements. We have recently signed a contract for the sale of our business. There is no earn out arrangement in the sales consideration but we have allowed the purchasers some time to pay the full sales price. On settlement, which occurs on 1 July, they will pay us 60% of the agreed price, with a further 25% paid on the first anniversary and the final 15% a year later. Does the earn out changes affect us?
A. No, your issue is not related to an earn out. Your price is agreed in the contract and is a certain amount. There is however a tax impact to the arrangement you have entered into. Effectively you have provided the purchasers with a level of vendor finance. By agreeing to allow them to delay payment of 40% of the sale price for up to 2 years you are acting as their financier.
Loading ...
