Vendor finance and earnouts

It is common for a vendor to agree to defer payment of part of the purchase price. The main reasons for this are that the purchaser cannot afford to pay the whole purchase price immediately, or that part of the purchase price is agreed to be calculated on how the business performs, during an agreed period after settlement.

In this case, the vendor will usually require security for the unpaid balance. When the vendor takes security over the business, there are technical issues including the following:

Security over shares

If the security granted by the purchaser includes a charge over shares in the company operating the business, this is usually documented by the purchaser providing a blank transfer of the shares back to the vendor.

Security over a business conducted by an individual

This requires a security interest document (formerly known as "bill of sale") to be registered.

Personal Property Securities Act 2009

This Act exclusively covers security over almost everything other than real property. It has a central, federal registry of all such securities. This includes securities which were registered on the numerous state registries and other federal registries prior to the act coming into force in 2012. Solicitors acting the purchasers and must now carry out a search of the PPS register.

See Vendor finance and earnouts.