We are worried that if we disagree with the buyer's post-closing earnout calculations, we will get dragged into a costly and lengthy legal battle. How do we structure an expedited, non-judicial dispute resolution mechanism in the purchase agreement?

Question

Tyler Smith · Accepted Answer

Earnouts are fertile ground for post-closing disputes. If the buyer controls the bookkeeping and operations post-close, they can easily present calculations that show you missed your targets, leaving you with zero payout and a massive legal bill if you try to fight them.

To avoid this, you must write a strict, expedited dispute resolution mechanism directly into the purchase agreement. Avoid any clause that routes disputes through traditional courts.

Instead, specify that any disagreement regarding the earnout calculation must first be addressed in a structured meeting between the parties within fifteen days. If unresolved, the dispute must be submitted to an independent, pre-selected accounting firm that acts as an arbitrator, not a mediator.

This firm must be mutually agreed upon in the purchase agreement, and their decision must be final and binding.

Structure the fees so that the losing party pays the cost of the arbitration, which discourages the buyer from making frivolous adjustments. This ensures any post-closing disagreements are resolved quickly, privately, and cost-effectively, keeping your focus on your next venture.