Anti-embarrassment Clause

Last updated: March 22, 2024

What Does Anti-embarrassment Clause Mean?

An anti-embarrassment clause, also known as on-sale, is a clause that enables the seller to recalculate the purchase price of a share and subject it to an increase in the event that the buyer sells the same shares at a higher price. This clause is valid only for a certain period of time following the completion of a particular transaction. This clause is mostly used in share purchase agreements.


Divestopedia Explains Anti-embarrassment Clause

Anti-embarrassment clause is also known as overage when it applies to the sale of land or other property. This clause mainly deals with the seller of land or shares and gives the seller an increase when the value of the asset increases in the future. In the case of land, this means the seller can request for an increased value if the land has increased in value due to a specific event, such as obtaining approval for construction or getting permission to put it to use for a purpose that was non-existent at the time of sale. It does not merely apply to market increase in the value of the asset due to typical market forces, but rather on specific events that increase its value.

In the case of shares, the anti-embarrassment clause protects the seller from a situation where the buyer sells the shares of the target company at a higher price than what was prevailing at the time of sale. Since the value of shares can increase due to a plethora of reasons such as better performance by the company, improved confidence in the market and inflation in share prices, this clause is valid only for a certain time after the sale has been completed. This period is agreed by both the buyer and the seller at the time of purchase. Moreover, it prevents the seller from being “embarrassed” due to the buyer getting a higher price for the shares just after the sale has occurred. As a result, the seller can request for a recalculation of the price to ensure that he or she gets a share in the higher prices.

Rarely are anti-embarrassment clauses negotiated in the sale of a mid-market business because it is unlikely that a company could be subsequently sold to another buyer in a relatively short period of time.



Anti Embarrassment Clause



Share This Term

  • Facebook
  • LinkedIn
  • Twitter

Related Reading

Trending Articles

Go back to top