What is a management agreement in a business sale?
For many entrepreneurs, selling a business is one of the most important moments in their business. Years of dedication, growth, and value converge in a single transaction. The focus during the sales process is often on price, terms, and transaction structure. But just as important is the question: what will your role be after the sale of your business?
When you remain involved as a director or manager, a new reality emerges. You are no longer a fully independent entrepreneur, but operate within new relationships with new shareholders, investors, or regulators.
The agreements about this are recorded in a management agreement in the event of a company sale. This legal document determines under what conditions you continue your role and how your position is structured legally, financially and organizationally.
In this blog, we explain exactly what a management agreement entails, what agreements are laid down in it, and what you, as an entrepreneur, should be aware of.
What exactly does a management agreement entail?
A management agreement is the agreement that sets out the conditions under which you will perform work for the company after the sale.
If you remain as a director or executive, your position will change significantly. While you previously had full control as a shareholder and executive, after the sale you will be accountable to fellow shareholders or a Supervisory Board.
The management agreement regulates, among other things:
- Your duties and responsibilities.
- Your powers and decision-making freedom.
- The duration of your involvement.
- Your management fee and any variable remuneration.
- The conditions under which the collaboration can be terminated.
The document therefore directly affects your influence, security and personal reward after the transaction.
When is a management agreement drawn up?
A management agreement is usually drawn up in the final phase of the sales process, simultaneously with the shareholders' agreement and the purchase agreement.
In the Letter of Intent (LOI) basic principles are often already established, such as:
- The period during which you will stay.
- The amount and structure of your compensation.
- Any bonus or earn-out agreements.
These main points are then legally elaborated in the final management agreement.
It's precisely during this phase that the pressure to close increases. Speed seems more important than nuance. Yet, due diligence is essential here. After all, the management agreement determines your daily operations after the sale of your company.
What agreements are laid down in a management agreement?
The content of a management agreement varies per transaction, but generally contains the following components:
1. Tasks, powers and reporting lines
What responsibilities will you retain? What strategic decisions will you need to submit? And to whom will you be accountable? This will determine how much scope you actually have for business within the new structure.
2. Compensation and reward structure
Do you receive a fixed management fee? Is there a bonus scheme or variable compensation linked to performance? With investment structures, part of your return can shift from fixed compensation to capital growth upon future exit.
3. Duration of the agreement
Is there a fixed term, for example, three to five years? Or is the contract indefinite with a notice period? This is important for your security and your negotiating position.
4. Reasons for termination
When can the agreement be terminated? And under what conditions? Consider situations such as poor performance, disagreements, or strategic changes. Good leaver and bad leaver provisions may also be relevant here if you remain a shareholder.
5. Non-competition and relationship clauses
Agreements are often included regarding what you may or may not do after termination. The scope and duration of these provisions directly impact your future freedom as an entrepreneur.
What is the difference between a management agreement and a shareholders' agreement?
The difference between a management agreement and a shareholders' agreement is in the role that they regulate.
Shareholders' Agreement (SHA)
: The shareholders' agreement regulates the cooperation between shareholders: control, dividends, share transfers and future exit moments.
Management agreement
: The management agreement governs your role as director or manager: duties, compensation, responsibilities and termination.
If you remain both a shareholder and a director after the sale, these two documents will work closely together. The agreements in the shareholders' agreement regarding control and exit must align with the management agreement's provisions regarding your role and position.
What are the pitfalls when concluding a management agreement?
At first glance, a management agreement seems like a standard document. In practice, it directly affects your position, income, and influence. Key considerations include:
- Do your powers match your responsibilities?
- Is your reward structure balanced with the risk you take?
- Are termination provisions reasonable and balanced?
- Is there a connection between the shareholders' agreement and the purchase agreement?
The right balance between security, flexibility and incentives is essential.
What is the role of an advisor in a management agreement?
A management agreement is legal in nature, but its content is strategic. The agreements you make must be in line with the valuation of your company, the financing structure, your negotiating position and your personal goals.
At Match Plan, we combine strategic M&A advice with in-house legal expertise. Our lawyers are involved from the very beginning and work closely with our consultants.
This means that legal decisions are not considered in isolation from commercial reality. Everything is assessed in a coherent manner, ensuring that your interests are not only legally sound but also strategically well-positioned.
Why choose Match Plan?
Match Plan guides entrepreneurs from the initial orientation phase to the final transfer. As an independent advisor, we combine strategic M&A advice with in-house legal expertise, ensuring your interests are paramount and all transaction documentation is carefully recorded. What we can do for you:
- We offer complete support from start to finish, from the initial strategic exploration to the formal transfer at the notary.
- With over 30 years of experience, we combine in-depth knowledge of business transfers with legal expertise under one roof, ensuring that strategy and contract formation seamlessly integrate.
- Our advisors and lawyers work closely together and provide strategic input on negotiation strategy, transaction structure, risk allocation, and management agreements.
- We work independently and transparently, always putting your goals and interests first in every step of the process.
- We provide peace of mind and clarity by coordinating the entire process, so you can continue to focus on the value and continuity of your business.
Would you like to know what a management agreement looks like in your situation and which agreements are essential? Feel free to contact us for a no-obligation consultation.
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