An agreement structure outlines the terms of a deal between a buyer and seller, including asset identification, payment terms, and seller’s rights in case of non-payment. It applies to various transactions, from stocks to business acquisitions.
An agreement structure is a term used to describe the terms of the agreement between a buyer and a seller that apply in a given trade agreement. The term is commonly associated with investment activities and refers to the rights and responsibilities that both the investor and the issuer of those securities assume as part of their ongoing business relationship. A deal structure exists in almost any transaction that involves the establishment of some sort of deal between the parties involved, including venture capital schemes and company takeovers that require all parties to perform certain tasks for the deal to be considered complete.
While the provisions found in any type of agreement will vary based on the assets involved and the intentions of all parties involved, there are some basics found in almost all agreement structures. One has to do with the identification of the asset being traded or sold. Contract provisions will include a description that is accurate and helps to identify the asset beyond doubt.
A deal structure will also address the circumstances under which the buyer may assume control of the asset. This is often related to the payment terms detailed in the contract. For example, a business owner may sell a business to a buyer, on the condition that a certain percentage of the purchase price as a down payment be made by a specified date, with a series of monthly or periodic lump sum payments in accordance with a predetermined time thereafter. Assuming the down payment is made on time, the seller relinquishes control of the business to the buyer, who then takes responsibility for operating the business.
The agreement structure will also often include specific details about the seller’s rights in case the buyer fails to fulfill the commitments made in the contract. This means that if the structure of the agreement requires payments to be sent at specified intervals over a period of time and the buyer fails to submit such payments, the owner may have the ability to declare the agreement null and void and take steps to recover the asset. At the same time, the terms of the agreement may offer some protections to the buyer, such as a grace period to catch up on past-due payments before the agreement is deemed void.
The general idea of a deal structure can relate to the sale of all types of assets, starting with stocks and moving to a business acquisition. In each situation, the structure will provide all interested parties with certain rights that allow them to benefit from the transaction, as well as certain responsibilities that they must manage to continue enjoying those benefits. Otherwise, the deal may collapse, leaving one or more parties with some type of loss that may or may not be easily recovered.
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