An earn out is a clause in a purchase agreement that allows the purchase price of a business to be dependent on future performance, typically through financial metrics or milestones being achieved. The seller may receive a portion of the purchase price initially, and the remainder is paid based on future performance, which allows them to "earn out" the full amount.

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What Is an Earn Out

Question 26

Multiple Choice

What is an earn out?

A) Clause in a purchase agreement where the buyer earns out the difference in purchase price through performance in their own stock
B) Clause that allows the seller to buy part of the company back if it "earns out" specific milestones
C) Clause in a purchase agreement that allows the seller to receive stock in the buyer company so that they can "earn out" some of the future company value
D) Clause where the purchase price of a business is dependent on future performance

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