Profit Share Agreements

A Profit Share Agreement (also called a Profit Sharing Agreement) is a contract between two or more parties who agree to work together and share profits together. The purpose is to combine the strengths of each party in order to achieve mutual success.

These agreements may be used in employment, independent contractor situations, or any other business relationships where everyone agrees to split the profits for a period of time or for a particular campaign/project.

The last thing you want when you’re focused on running a business is whether or not you agreed to something vague — especially when it comes to profits. Profit Share Agreements clearly define who gets what, how much, and when. It also details if the parties involved have to share in losses or liabilities. For example, if your business did $200,000 in sales, but your overhead and expenses were $250,000, then your losses are $50,000. Are you bearing 100% of these losses?

Moreover, it protects each party from liability and intellectual property infringement. For example, what happens if a party publicly discloses the other party’s trade secrets? What happens if a party experiences legal difficulties? Will they be able to claim any remedies from the other party? These are some issues that a Profit Share Agreement can iron out.

The cost of having a lawyer-drafted Profit Share Agreement is likely to be significantly less than the cost of going to court if a legal dispute arises that could have been prevented by a well-drafted agreement.

Here are some of the key elements that should be included in a Profit Share Agreement:

• Profit Distribution: A well-drafted Profit Share Agreement should clearly define the methodology used to calculate and distribute profits among the parties. It should specify the profit-sharing percentages or formula used for profit distribution as well as the frequency of such distributions. This ensures transparency and fairness.
  
  
• Obligations: This clause outlines the specific tasks, contributions, and responsibilities that each party is expected to fulfil. It should clearly detail the scope of work, deadlines, and expectations so that all parties are aware of their roles and responsibilities.
  
  
• Termination: This clause specifies the conditions under which the agreement can be terminated, such as breach of contract or failure to meet certain performance criteria. In some cases, it should also specify an end date for the agreement.
  
  
• Dispute Resolution: This clause sets out a structured framework for handling conflicts. It may outline alternative dispute resolution methods such as mediation or arbitration.
  
  
• Confidentiality: This clause ensures that proprietary information, trade secrets, and other confidential information shared between the parties are not disclosed to unauthorized parties.
  
  
• Intellectual Property: This clause addresses ownership rights. It protects and enforces the intellectual property rights of each party.
  
  
• Indemnities and Liabilities: This clause establishes the obligations of each party to indemnify and hold harmless the other parties from any claims, damages, or losses arising from their actions or omissions. This helps to manage risk.

Have a Profit-Sharing Agreement tailored to the unique circumstances of your business relationship. As this agreement and each of its provisions are so complex, it is important to obtain professional legal services. A Profit Share Agreement template would likely be inadequate.

Profit-Sharing Agreements are very similar to Joint Venture Agreements. The main difference is that Joint Venture Agreements are usually more comprehensive. They may be used in situations where two or more parties are pooling their resources together. It will have more specific terms regarding business management, operations, and the process for dissolving the joint venture.

Note that Profit Sharing Agreements are also different from Partnership Agreements. It is best to consult a lawyer to determine which type of agreement will work best for your situation.

As a legally binding contract, a Profit Sharing Agreement is legally enforceable as long as it meets all of the elements of a valid contract in Contract Law. Therefore, if a party breaches the terms of the agreement, then the other parties may seek legal remedies such as specific performance, damages, or injunctive relief to enforce the agreement and protect their interests.

Profit-sharing arrangements can be very complex. Therefore, when it comes to Profit Share Agreements, it is best to get an experienced business and contract lawyer involved. The right lawyer will ensure that the agreement is legally sound and protective of your specific needs.

We may recommend clauses that will protect you and your business in ways that you would not have otherwise thought of. Or at least review it for you to help you truly understand what you are getting into.

Set up a free consultation to discuss your business objectives today.