I act for a private UK company which is negotiating the purchase of another. An earn-out has been commercially agreed so the consideration would include deferred payments payable (if at all) by reference to future profits. The sellers (all individuals) suggest that instead the buyer issues loan notes to them with a face value equal to an optimistic estimate of the earn-out. They would then warrant the future profits of the target and in the event of a breach the redemption value of the loan notes would be reduced. Are there any tax issues attached to this for a buyer?
Reverse or negative earn-out structuring like this is increasingly common. For the sellers the aim is generally to maximise the...
