Summary of Forfeiture Clause Justification
The Forfeiture clause is vital to safeguarding the interests of both the Vendor and DM. Its done by promoting commitment, reducing risks, and compensating for efforts and potential losses. Its inclusion is justified by industry practices, the distinctive nature of business takeovers, and the necessity to protect the valuable network and client base built over time by the DM.
Thus, the justification of Forfeiture clause
- DM have spent significant time (few months to decades) to secure Buyers
- When forfeiture happens, the Buyer severe ties with DM; erasing all accumulated goodwill built over years - a loss not faced by the Vendor.
- DM suffers the loss of the expected BF (Brokerage Fee), which is significant.
- DM also loses all future opportunities with that Buyer for good.
- Forfeiture money originates from Buyers, introduced solely by DM.
- Its not the Vendors money to begin with.
- Vendor retains 100% ownership of the Biz.
- But DM has no automatic benefit or share from the resale of Vendor’s biz
- Forfeiture could have also happened due to negligence or short-coming of the Buyer failing to diligently preempt his needs & safety before committing. Which means that other Buyers knowingly wouldn't have committed on such terms laid out by Vendor.
- In term of computation of the FF; DM share is limited to the BF quantum; whereas Vendor gets equal share and any excess beyond BF.
- Vendor still can sell the school to others and recover full sale value without sharing with DM
- Even if DM secures another Buyer, DM loses the chance to place that Buyer with another school/Vendor
- The Forfeiture terms are the standard practice in M&A deals.
Others:
- It merely protects DM’s irreversible loss
- The computation is fair & balanced
- Encourage genuine serious dealing between Buyer & Vendor