The buyer wants us to carry a major seller note. How do we structure springing equity or step-in rights if they default on their payments?

Question

Tyler Smith · Accepted Answer

Carrying a seller note is often necessary to close a transaction, but you cannot leave your financial future entirely at the mercy of the buyer's operational competence. If the buyer defaults on the note or breaches their senior debt covenants, you need a mechanism to step back in and protect your position without triggering a messy lawsuit. This is where you negotiate springing equity and step-in rights.

Your purchase agreement must specify that a default on the seller note immediately triggers a conversion of the remaining debt into a controlling equity stake, or grants you voting control of the board. To make this actionable, you must also secure step-in rights that allow you to temporarily reclaim your seat as the Visionary or Integrator on the Accountability Chart. This allows you to deploy the EOS® framework to stabilize operations and run a structured Level 10 Meeting™ to get the business back on track.

You do not want to run the company forever, but you must have the legal authority to seize the wheel if the buyer is driving it off a cliff. Ensure this provision is explicitly written into both the subordination agreement with the senior lender and the purchase agreement. If the senior lender objects, negotiate a compromise where your step-in rights are delayed by a brief standstill period rather than eliminated entirely.