Additional consideration: Overview, definition, and example
What is additional consideration?
Additional consideration refers to extra value or benefits provided in a contract beyond the original agreed-upon terms. It can take the form of extra payments, extended services, added goods, or other forms of compensation that one party provides to another to modify or fulfill an agreement.
For example, in a business acquisition, the buyer might agree to pay additional consideration if the acquired company meets certain financial performance targets after the sale.
Why is additional consideration important?
Additional consideration is important because it allows contracts to remain flexible and account for future changes in value, performance, or circumstances. It can be used to incentivize parties, adjust payments, or compensate for unforeseen obligations.
For businesses, additional consideration can affect pricing, payment structures, and legal obligations. It is often included in contracts related to mergers and acquisitions, employment agreements, settlement negotiations, and supplier agreements.
Understanding additional consideration through an example
Imagine a company hires a consultant for a one-year contract at $5,000 per month. The contract includes an additional consideration clause stating that if the consultant helps the company secure a major deal, they will receive a $10,000 bonus. This additional payment is a form of additional consideration tied to performance.
In another case, a startup is acquired by a larger company for an initial payment of $1 million. However, the agreement includes an earnout provision, stating that if the startup reaches $5 million in sales within the next two years, the founders will receive an additional $500,000. This future payment qualifies as additional consideration.
An example of an additional consideration clause
Here’s how an additional consideration clause might appear in a contract:
“In addition to the initial payment, the Buyer agrees to pay the Seller additional consideration of up to [$X], contingent upon the achievement of the following milestones: [describe conditions].”
Conclusion
Additional consideration allows parties to modify agreements by adding extra value based on performance, milestones, or other conditions. It provides flexibility in business transactions and contracts, ensuring that compensation reflects changing circumstances.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.