A structure I see regularly is a partial sale, where a trade buyer, often a serial acquirer, buys 51% of an owner-managed business. The founders keep 49%, stay in their jobs, and get paid a mix of cash now and deferred money later, depending on how the business performs. Sometimes there’s a route to sell the 49% down the line (and sometimes there isnt!) The heads of terms arrive on three or four pages, most of it about price, and the sellers are asked to sign within the week.

Why the heads matter more than their legal status suggests

Heads of terms are mostly non-binding. Exclusivity, confidentiality and sometimes costs are binding; the rest is a statement of intent. People take from that the idea that the detail can wait for the lawyers. In practice the heads set the baseline for every negotiation that follows, and once you’ve signed exclusivity your bargaining position drops, because the buyer knows you can’t talk to anyone else for the next three months. Anything you want that isn’t in the heads becomes something you’re asking for as a favour later. So it’s worth getting the important points in now, even in outline.

The 49% is the bit that needs the most attention

When you sell everything, the shareholder terms don’t matter to you; you’re gone. When you keep 49%, you’re a minority shareholder in a company controlled by someone else, and the value of that stake depends almost entirely on the shareholders’ agreement. “Usual provisions” means nothing, because there’s no usual. The points I’d want in the heads are these.

Leaver provisions first. If you leave, or are dismissed, in year two, what happens to your shares? Most buyers’ precedents will say you must sell them back, and the price depends on whether you’re a good or bad leaver. The definitions decide everything. A bad leaver can be paid nominal value, which on a stake you thought was worth a seven-figure sum is close to confiscation. The heads should say what makes someone a bad leaver (I’d argue only dismissal for gross misconduct or a serious breach of covenant), what a good leaver gets (fair value, independently determined), and who decides. Bear in mind the buyer controls the board that decides whether to dismiss you.

Then the exit for the remaining stake. Is there a put option (you can require the buyer to purchase) or only a call (the buyer can require you to sell)? At what price, calculated how, and when? A call option at a formula the buyer controls, with no put, means you own 49% of something you may never be able to sell. If the buyer’s whole model depends on later buying out the founders, the formula should be in the heads.

Then the protections while you hold it: reserved matters that need your consent (new share issues, borrowing above a threshold, related-party contracts with the buyer’s group, changing the business), a board seat, information rights, and a dividend policy. Without these, your remedy as a minority shareholder is an unfair prejudice petition, which is slow, expensive and uncertain. It’s a last resort.

The deferred consideration is not as simple as the formula looks

Deferred payments tied to profit look mechanical: hit the number, get the money. The questions to ask are who calculates the number, on what accounting policies, and what can be charged against it. A buyer’s group can allocate management charges, central costs, its own staff and its own overheads to your business, each of which reduces the profit the payment depends on. The heads should freeze the accounting policies as at the last accounts, exclude group recharges unless agreed, and say what happens if you land just short (a cliff edge or a sliding scale). If the company has subsidiaries, say whether their results count. And ask which entity is actually paying the deferred sum, and whether its parent will guarantee it; a newly formed acquisition vehicle with no assets is not a comforting debtor.

The tension in all of this is obvious once it’s said out loud. The buyer controls the business that generates your earn-out, and controls whether you leave, which decides what you get for your 49%. Plenty of these deals work well, so I’m not saying refuse the structure. I am saying the protections need writing down rather than assuming.

The rest of the list

Warranties and liability: a cap (often the cash paid at completion, sometimes less), a time limit, and whether the sellers are liable jointly and severally, which means you can be pursued for your co-seller’s breach. A due diligence indemnity, meaning an open-ended promise to cover whatever diligence throws up, shouldn’t be in heads of terms at all; that’s what the price and the warranties are for.

Restrictive covenants: how long, how wide, and whether they run from completion or from the date you eventually leave. Buyers will want both, which on a five-year earn-out can mean a very long time out of your own industry.

Your service agreement: salary and bonus during the earn-out period, notice, and what conduct triggers dismissal. This links straight back to the leaver provisions and the two documents need to be read together.

Exclusivity: I’d resist anything beyond eight to ten weeks on a first period, with extensions by agreement, and a clean break if the buyer’s due diligence stops progressing. And confidentiality, which should already be in place under an NDA before the heads are exchanged; if it isn’t, put it in now.

What I’d actually do

Don’t sign the heads because the price is right and the rest looks like detail. Send them to someone who has seen the buyer’s precedent shareholders’ agreement before, because with serial acquirers there almost always is one and it’s almost always the same. Ask for the leaver terms, the exit mechanism and the reserved matters to be set out in the heads, in outline, before exclusivity starts. A buyer who won’t commit to those in principle at this stage is telling you something about the next three months.