If you`re planning on selling a company, you might be considering a forward equity sale agreement. This type of sale can be an excellent way to secure a profitable exit from your business. In this article, we`ll explore what a forward equity sale agreement is and how it works.
First, let`s define what an equity sale is. Essentially, an equity sale is where a buyer purchases the shares of a company. This type of sale transfers ownership of the company to the buyer. The buyer then becomes the new owner of the company.
So, what is a forward equity sale agreement? A forward equity sale agreement is a type of equity sale that takes place before the company has reached its full potential. Essentially, the seller is selling a portion of the company`s future profits to the buyer.
In a forward equity sale agreement, the seller agrees to sell a percentage of their equity in the company to the buyer. The sale price is determined based on the projected future earnings of the company. This means that the seller is essentially selling a portion of their future profits to the buyer.
One of the main benefits of a forward equity sale agreement is that it allows the seller to receive a lump sum payment upfront. This can be beneficial if the seller needs capital to start a new venture or if they simply want to retire. The seller can receive a large sum of money upfront instead of waiting for the company to become profitable.
However, there are also some risks associated with a forward equity sale agreement. Because the sale price is based on projected future earnings, there is always a risk that the company will not perform as expected. This means that the seller may end up receiving less money than they had hoped for.
Overall, a forward equity sale agreement can be an excellent way for a seller to exit a company. However, it`s important to carefully consider the risks and benefits before entering into this type of sale. If you`re considering a forward equity sale agreement, it`s recommended that you consult with a lawyer or financial advisor to ensure that it`s the right choice for you.