Earn-outs tend to shift risk from the seller to the buyer in that a higher price is paid only when the seller has met or exceeded certain performance criteria.

Question

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Earn-outs shift risk from the buyer to the seller because the full purchase price is contingent on the future performance of the business, ensuring the buyer does not overpay if those performance targets are not met.

Earn-Outs Tend to Shift Risk from the Seller to the Buyer