Setoff Agreement for Mutual Debts

This free article will steer you through the issues to consider if the sale of your business has an earn-out component or a deferred payment (seller financing) option.

Key Issues

This article covers a number of issues that must be considered, including:

• determining a fair price,
• negotiating reasonable terms and interest rate,
• determining the amount of money the buyer will put in at the outset,
• securing the unpaid balance of the purchase price,
• considering rights of setoff,
• setting payment milestones, and the consequences for missing a milestone,
• dealing with financial needs and operational decisions of the business until the purchase price has been paid in full.

Risk Management Strategies for Problems Arising After Closing

The writer also touches on how you should address potential problems that could arise after the closing, such as:

• Death of either party
• Default
• Insolvency of either party. 

Planning Your Exit Strategy

The information provided in this article is intended to help small business owners exit from their businesses through a carefully structured seller-financed or earn-out sale arrangement.

Author Credit

This article was written by Phil Thompson, business lawyer and corporate counsel in Ontario, Canada.

Secure repayment of a loan from a shareholder to a corporation with this Ontario Security Agreement for Shareholder Loan.

• The corporation (as borrower) grants the secured party (a trustee for the shareholders) a security interest over the borrower's corporate assets, in order to secure its current or future indebtedness to its shareholders for shareholder advances, stock dividends or other obligations.
• The secured party holds the security interest in trust for the shareholders and may release all or part of the secured collateral as it sees fit.
• The borrower is restricted from selling, transferring, leasing or otherwise disposing of any of the collateral forming the security.
• This legal agreement template is available as a fully editable Microsoft Word document.
• Intended for use only in the Province of Ontario, Canada.

Sell the shares of an Ontario corporation and transfer any existing shareholder loans with this Share Purchase and Assignment Agreement.

• The seller sells its shares and assigns the balance of shareholder loans still outstanding over to the buyer, who is taking over the business of the company.
• The purchase price will be allocated between the shares and the shareholder loans, at fair market value.
• The buyer is at liberty to contact customers, suppliers and employees to notify them of the change of control. The seller will operate the business until closing.
• The parties will each file any required tax elections with respect to the transaction.
• This template is available as a downloadable and fully customizable MS Word document.
• Intended for use only in the Province of Ontario, Canada.