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Consideration Glossary

Below is a set of common terms used when structuring the sale and purchase price of a business.

Deferred Consideration

This term is used to refer to consideration that is payable in one or more instalments after completion of the share or asset purchase. It may be unconditional and simply payable after a period of time. Or it may be subject to certain conditions, such as the future performance of the business (in the case of an earn-out) or the finalisation of completion accounts, which could lead to an upwards and downwards adjustment of the purchase price

Whether or not the value of the deferred consideration is ascertainable at the time of completion still affect the amount of stamp duty payable (in the case of a share purchase).


In an earn-out part of the consideration for the seller's shares is determined by, and is subject to, the future performance of the company.

Commonly used in the case of owner-managed businesses, it is often linked to agreed profits of the company for the two or three financial periods following completion of the share sale. However, other financial targets can be used, such as net assets or turnover. There may also be the requirement for the seller to have continued involvement in the business, as well as obligations on the buyer regarding the management of the company during the earn-out period.


An earn-in arrangement is where an external person comes into the business and, subject to hitting agreed performance targets, acquires x% of the shares in the target company.

Escrow Account

An escrow account refers to a bank account in which a proportion of the purchase price is deposited and which can only be accessed on the joint instructions of the buyer and the seller. Escrow accounts are often used where a retention is required and pending finalisation of completion accounts.

Loan Notes

Loan notes are a form of deferred payment that can be redeemed on a date in the future. They are effectively an IOU and allow buyers to defer payment of, usually just part of, the consideration to a later date and can attract interest at an agreed rate. They can be secured or unsecured.


Retention refers to the situation where part of the purchase price is retained in order to provide a form of security for any potential of warranty or indemnity claims under the sale and purchase agreement. This will often relate to specific matters identified in due diligence but may also be sought by a buyer on a more general level, as a means of comfort.

The money is usually held in an escrow account in the name of the seller’s and the buyer’s solicitors, or increasingly, in the name of just one of them, on behalf of the parties. When agreeing the terms of a retention clause, thought should be given to how long the money will be retained, who the interest belongs to and the circumstances in which the money can be withdrawn.


Where part of the purchase price is deferred, a seller may seek some form of security to ensure that he receives that deferred payment. There are various forms of security, including a bank guarantee, a debenture and a charge over shares.

Shares as Consideration

Shares as consideration is where a buyer gives the seller shares in its own company as part of the consideration for the seller's shares in the target company. There are various reasons why shares may be used as consideration, including where the purchaser is unable to raise sufficient funds to pay the full purchase price in cash, as an incentive to retain owner-managers within the business post-completion and where the seller believes that the future of the business is more promising as part of a group. There are also potential tax advantages for an individual seller.


A Buyer's Guide


A Buyer's Guide


A Seller's Guide


A Seller's Guide


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