Earn Out Clause Law and Legal Definition

Earn out clauses are part of business purchase agreements which sets a portion of the price contingent upon the business achieving some future financial goal. These clauses are included when the buyer and seller disagree significantly over what the business should be worth. This is especially so if the business financial performance is expected to improve substantially at some future time, after the purchase. In such cases, the purchase agreement may set an additional amount that the seller will receive in the future if this financial performance expectation is realized.