Service Agreements: What Changes for Management After the Deal

The 30-Second Definition

A Service Agreement is the new employment contract entered into by a founder or senior manager who is staying on with the business after completion. It is typically negotiated alongside the Share Purchase Agreement and is often made a condition of the deal itself.

Why Buyers Require One

Institutional buyers are often paying, in part, for the continued involvement of the existing management team. A Service Agreement locks in that continuity and sets out clear terms for the post-completion relationship before the founder becomes, for the first time, an employee rather than the ultimate decision-maker.

What to Negotiate

Remuneration — base pay plus any incentive linked to an earnout. Term and notice period. 

Role and reporting line — founders often move from running the business to reporting into a new board, and this should be fully understood before signing, not discovered afterwards. 

Restrictive covenants — often cross-referenced from the SPA but sometimes extended with additional terms specific to the new employment relationship. Good Leaver and Bad Leaver definitions, which govern how deferred consideration, earnout payments, and any rolled-over equity are treated if employment ends early. Garden leave provisions.

The Common Mistake

Founders frequently focus their entire negotiation on the SPA's price and structure, treating the Service Agreement as a formality to be dealt with later. They then discover that the day-to-day terms — reporting lines, decision-making authority, notice periods — materially constrain them in ways the price negotiation never touched.

The Link to Earnout Payments

Where part of the consideration is deferred or earnout-linked, the Leaver provisions in the Service Agreement often determine whether that money is actually received at all. This makes it one of the most consequential, and most commonly overlooked, documents in the entire transaction.

GRAX Connection

This document bridges Acquire — where the buyer is locking in management continuity — and Exit, where it shapes a founder's actual day-to-day experience and remaining financial upside after completion. It typically receives far less attention than the SPA, despite often mattering more to a founder's life after the sale.

This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.