[John Kane]

John Kane

Has anyone sold anything on a performance note?
I am thinking about selling a business on a PBN with the following terms.
10 year term for 50% of the profits then 25% for the next 5. Does anyone have any language example for this type of note?
Thanks in advance

John in Frisco

[Dee L Graber]

Dee L Graber

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John, I’m thinking that one of the greatest risks might be that your buyer has some undefined incentive to under-report whatever varying profits that will be made. Different types of businesses offer different kinds of opportunities for such under-reporting. (As an example, the movie, recordings, and entertainment industry is notorious for finding such ways in order to skin their performers.)

I don’t know what kind of business you’re considering selling, nor is it any of my business. Whatever level of under-reporting opportunity risk there might be in your line of business needs to be matched in the language of your performance note by a required auditing process sufficient to protect your interest. Skinning the IRS is one thing; skinning you would become very personal. Failure to execute that risk-commensurate level of diligent auditing should have severe consequences — in your favor.

–Dee

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[John Kane]

John Kane

Thanks Dee,
In this situation I am not worried about that particular risk. Thank you for the response.

John

[DON WEDE]

DON WEDE

John
Think you are going to craft this note yourself.

[Chirs Tillman]

Chirs Tillman

If your selling the business, than you know what the business can produce. I would say stay in by getting your hard costs out as a down payment or “buy-in” and performance base royalties forever. Require quarterly reports and a cpa certified K-1 at the end of each year.

[Dee L Graber]

Dee L Graber

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If investopedia knows what they are talking about, a K-1 is strictly for each partner in a partnership. My oujia board suggests the business John wants to sell is NOT a partnership.

http://www.investopedia.com/terms/s/schedule-k-1.asp

–Dee