Your post-closing role has limits you did not negotiate.

A post-closing consulting agreement is a separate contract from the one that sells your company, and it is almost always drafted so the buyer can end it early. That matters when a seller note, deferred price, or any money still owed to you depends on you being there. Fix the term, the duties, and the exit before closing.

What is a seller consulting agreement after selling a business?

A seller consulting agreement is an independent contractor arrangement under which the former owner provides defined services to the buyer after closing for a stated fee. It is one of three documents buyers use to keep a seller involved, alongside a post-closing employment agreement and a transition services agreement. They are not interchangeable.

The employment agreement makes you staff: payroll, withholding, the buyer directs your work. The consulting agreement makes you a vendor: you invoice, you pay your own taxes, you control how the work gets done. A transition services agreement is narrower than both. It is a punch list with a deadline.

At this size a standalone transition services agreement is uncommon. The punch list usually sits as a schedule inside the purchase or consulting agreement, which is why it is drafted loosely and never reviewed on its own. Name each document and keep it named; the obligations and termination rights differ in each.

Does the SBA limit how long a seller can stay on after the sale?

Yes. In a complete change of ownership financed by a 7(a) loan, the seller may not remain an officer, director, stockholder or employee of the business. The seller may remain only as a consultant, and only for a capped period. If a 7(a) loan is funding your buyer, that cap sets the outside edge of your post-closing role.

Which cap depends on the version of the SBA rulebook governing the loan. SOP 50 10 8, effective June 1, 2025, capped the consulting period at 12 months including extensions. SOP 50 10 8.1, effective October 1, 2026, raised it to 24 months in the aggregate, extensions included.

The trigger is not your signing date or the letter of intent. It is the date the loan receives an SBA loan number. Numbered on or after October 1, 2026, the loan runs under SOP 50 10 8.1; earlier, under SOP 50 10 8 and the 12-month cap. The window runs from closing, in the aggregate. Ask the lender in writing which version governs.

Now the part sellers learn too late. An SBA-financed change of ownership requires a price fixed and determinable at closing, and seller earn-outs are not permitted. Contingent upside gets pushed into the consulting fee or a seller note instead, which is why the termination clause becomes the whole negotiation. Earn-outs belong to conventionally financed and buyer-financed deals.

Seller notes carry their own constraint. If your note counts toward the buyer’s equity injection, the SBA requires it on standby, on an agreement limiting what you can be paid and what you can enforce while the loan is outstanding. Read that form before you price the note.

A partial change of ownership is different. Where the buyer takes less than all the equity and you stay in as an owner, the consultant-only restriction does not apply the same way and you may continue as owner, officer, director or employee. Other rules attach, including guaranty obligations.

Rule: SBA SOP 50 10 8 (effective June 1, 2025); SBA SOP 50 10 8.1 (effective October 1, 2026), change of ownership requirements in Appendix 15.

I ask for the lender’s term sheet and the governing SOP version before I read a line of the consulting agreement, because the cap is not negotiable and everything else is drafted inside it.

Is consulting income after a business sale taxed the same as the purchase price?

No. Money paid under a consulting or employment agreement is ordinary compensation income. Purchase price paid for equity or for goodwill is generally capital gain. Moving a dollar from the price into the consulting fee changes that dollar’s tax character and adds employment tax the price does not carry. Stated as of October 2026.

Price is not uniformly capital gain either. In an asset sale, amounts allocated to inventory, to cash-basis receivables and to depreciation recapture are ordinary, and a C corporation seller is taxed at the company level and again on distribution.

Run the arithmetic. Long-term capital gain carries a top federal rate of 20 percent, plus the 3.8 percent net investment income tax where it applies. Ordinary income runs to 37 percent. Consulting income also carries self-employment tax of 15.3 percent on net earnings: 12.4 percent for Social Security up to the 2026 wage base of $184,500, and 2.9 percent for Medicare, uncapped, plus 0.9 percent above $200,000 of earned income for single filers, $250,000 for joint. Half the tax is deductible.

Law: 26 U.S.C. 1401 and 1401(b)(2); 26 U.S.C. 1411; 26 U.S.C. 164(f). Wage base: Social Security Administration, 2026 contribution and benefit base.

The buyer has the opposite incentive, and it is not a secret. A consulting fee is generally deductible currently if it is reasonable compensation for services actually rendered. Goodwill and a covenant not to compete are amortized over fifteen years. The buyer wants dollars in the fee; you want them in the price.

Law: 26 U.S.C. 162(a); 26 U.S.C. 197(a) and (d).

A dollar moved out of the purchase price and into the consulting fee is not a favor. It is a dollar that changed tax character on the way across the table.

The fee also has to reconcile with the allocation. In an applicable asset acquisition, consideration is allocated under the residual method and both sides report on Form 8594. A written allocation binds both parties, though not the IRS if the Service finds it inappropriate, and your ability to disavow it later is limited by rules that vary among circuits. A fee that is disguised price, next to an allocation saying otherwise, is a problem you made at signing.

Law: 26 U.S.C. 1060(a); IRS Form 8594. See Peco Foods, Inc. v. Commissioner, T.C. Memo. 2012-18, aff’d, 522 F. App’x 840 (11th Cir. 2013); Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967).

Can the buyer call you a consultant if you are really working like an employee?

Worker classification for federal tax purposes turns on the common-law right of control, not the title in the contract. The IRS weighs the evidence under headings it describes as behavioral control, financial control, and type of relationship. Calling the document a consulting agreement does not make you a contractor if the buyer directs when, where and how you work.

The regulation is blunt. You are an employee if the person for whom services are performed has the right to control and direct not only the result but the details and means by which it is accomplished. The right is enough; the buyer need not exercise it.

Law: 26 U.S.C. 3121(d)(2); Treas. Reg. 31.3121(d)-1(c)(2); Rev. Rul. 87-41, 1987-1 C.B. 296 (twenty factors); IRS Publication 15-A and Form SS-8 (three categories).

State law can be stricter. Several states apply an ABC test for wage, unemployment and workers’ compensation purposes, presuming employment unless every prong is met, so check the test where the work is performed. Then make drafting match reality. Five days a week at the buyer’s office, on the buyer’s schedule, with the buyer’s equipment, is employment wearing a contractor’s label.

Section 409A is the second trap, and it bites when the money is slow. Deferred compensation is generally includible when it vests unless the arrangement satisfies 409A, and failure triggers inclusion, a 20 percent additional tax and an interest charge. The common escape is the short-term deferral rule: payment by the fifteenth day of the third month after the year the risk of forfeiture lapses. A separate exception covers contractors serving two or more unrelated recipients, which a one-client consultant rarely meets.

Law: 26 U.S.C. 409A(a)(1); Treas. Reg. 1.409A-1(b)(4); Treas. Reg. 1.409A-1(f)(2).

What happens if the buyer terminates your consulting agreement in month two?

An at-will consulting agreement gives the buyer a free exit. If deferred money is written to depend on your continued service, the buyer can end the service and argue the money ends with it. That is not a loophole. That is the contract you signed, read the way courts read contracts: express terms first.

Delaware courts enforce contingent payment provisions as written and treat the implied covenant of good faith and fair dealing as a narrow gap-filler, not a fairness rule. Where express terms address the subject, there is no gap to fill. That reasoning travels, but Delaware law governs only if your documents choose it, and at this size the clause usually names a home state.

Case: Winshall v. Viacom International, Inc., 76 A.3d 808 (Del. 2013), aff’g 55 A.3d 629 (Del. Ch. 2011).

The covenant is narrow, not dead. Courts applying Winshall separate a buyer who declines to maximize your payout from one who purposefully acts to defeat it. The first is usually permitted; the second can state a claim. Apply that to the usual facts. The buyer terminates in month two, reassigns your accounts, the targets are missed, and you argue bad faith. The buyer points to the clause you signed. Therefore, a hard and expensive claim that cause-only termination would have prevented.

An at-will consulting agreement next to deferred consideration is a termination right the buyer bought for free.

Your restrictive covenants do not die with the role. A non-compete or non-solicit given as part of the sale of a business is generally enforced more readily than an employee covenant, and it usually sits in the purchase agreement. Enforceability is a question of state law, and states differ sharply on duration, geography and what counts as a sale-of-business covenant. The covenant runs on after the role ends. The federal rule that would have banned most non-competes was vacated in 2024 and the FTC acceded to that vacatur in September 2025. No nationwide ban exists as of October 2026.

Authority: Ryan, LLC v. FTC, No. 3:24-cv-00986 (N.D. Tex. Aug. 20, 2024); Federal Trade Commission press release, September 5, 2025.

What should the consulting agreement actually say?

A well-drafted post-closing consulting agreement fixes four things: how long it runs, what you must do, what ends it, and what happens to the rest of the deal if it ends. Open-ended service language and an unrestricted termination right cause the most damage, and both sit in the buyer’s first draft.

• A fixed term with a stated end date. Match the SBA window if a 7(a) loan funds the deal.
• Termination for cause only. Define cause narrowly, with notice and a cure period. Ten business days is a normal ask.
• Acceleration on early termination. Remaining fees come due if the buyer terminates without cause, subject to the lender’s terms.
• Hours and duties, in numbers. Capped hours per month, named subject matter, remote unless agreed, travel reimbursed and capped. Delete “reasonable assistance as requested.”
• Deferred consideration that stands alone. Where an earn-out is permitted, put operating covenants, accounting method, records access and the dispute mechanism in the purchase agreement, surviving termination.
• Seller note terms independent of the role. Its own events of default, no cross-reference to your service, subject to any standby agreement you must sign.
• No forfeiture triggers. Scan for any clause reducing price, deferred money or note principal if the role ends.
• Allocation consistency. The fee, the non-compete payment and the Form 8594 allocation should tell one story.
• Indemnification and insurance. If you advise on operations, address liability coverage.

What should you do next, before you sign anything?

The first step is sequencing. Price the role before you agree to it, confirm the financing constraint, and make the money that depends on you survive the end of the role. Those three moves are cheap before signing and close to impossible once the buyer has your signature.

Concretely, in this order. Ask the lender which SOP version governs, when the loan number issues, and whether a seller note must go on standby, because that sets your maximum term and when you get paid. Ask your CPA to model the same dollars twice, weighted to price and then to the fee, including self-employment tax, so you can see what the “favor” costs. Have the consulting agreement, the deferred money, the note and the allocation read together by one person. Then replace at-will termination with cause, notice and cure, and cap the hours.

I read the termination clause of the consulting agreement and the payment terms of anything deferred in the same sitting, before I read the price section, because that pairing is where the deal quietly comes apart.