Profit Share Contract Template

Share Success, Protect Interests: Create profit share contracts to define contributions, divide earnings fairly, and ensure mutual growth for all parties involved.

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Profit-Sharing
Agreement
Jim Clark Co
Profit-Sharing Agreement
Jim Clark Co.

Terms

This Profit-Sharing Agreement ("Agreement") is made and entered into on [Start Date], by and between the following parties:
Participants
Party 1

John Doe

123 Main St

New York, Ny 10012

[email protected]

(212) 555-1212

Party 2

Jim Clark

3445 Ravenwood Dr

College Park, GA 30349

[email protected]

(404) 763-3294
Terms
1. Parties Involved and Relationship

Party 1 (Name and Role):
Relationship: [e.g., business partner, investor, employer/employee]
Party 2 (Name and Role):
Relationship: [e.g., business partner, investor, co-owner]

The parties agree to share the profits generated from specific activities or projects described in this Agreement as outlined below.

2. Statement of Purpose:

The purpose of this Agreement is to outline the terms and conditions for sharing profits generated from the following activities or projects:

Purpose: [Briefly describe the activities or projects, e.g., "launching and managing a new software product," "joint ownership of a real estate investment"].
The parties will share profits according to the terms set forth in this Agreement, which exclusively applies to the activities or projects described herein.

3. Term of Agreement:

Start Date: The Agreement will begin on [Start Date].
End Date: The Agreement will end on [End Date], unless terminated earlier as outlined in Section 11 (Termination).
Renewal: The Agreement may be renewed if both parties provide written consent at least [Specify time period, e.g., 30 days] before the end of the current term.

4. Projects or Activities Covered:

The following projects or activities are the basis for the profit-sharing arrangement:

Project Description: [Provide detailed description of the projects or activities, e.g., "development and marketing of an online service," "ownership and operation of a joint business venture"].
Scope of Work: This Agreement is limited to the projects or activities described above. Any other ventures or business activities outside of these projects are excluded from the profit-sharing arrangement.

5. Responsibilities of the Parties:

Each party is responsible for the following tasks under this Agreement:

Party 1 Responsibilities: [List responsibilities, e.g., "managing day-to-day operations, overseeing product development"].
Party 2 Responsibilities: [List responsibilities, e.g., "providing capital investment, handling marketing and sales"].
Joint Responsibilities: [List any shared responsibilities, e.g., "both parties will participate in strategic planning and decision-making"].

Each party must fulfill their responsibilities to ensure successful execution of the activities or projects outlined in this Agreement.

6. Calculation and Distribution of Profits:

Profit Calculation: Profits will be calculated [Specify frequency, e.g., "monthly," "quarterly," "annually"] based on the net profits generated from the activities or projects described in Section 4. Net profits are defined as total revenues minus operating expenses, taxes, and any other agreed-upon deductions.
Profit Distribution: Profits will be distributed according to the following percentage breakdown:
Party 1: [Percentage]%
Party 2: [Percentage]%
Distribution Schedule: Profits will be distributed [Specify frequency, e.g., "within 30 days of the end of each quarter"].
Method of Payment: Payments will be made via [Specify payment methods, e.g., "bank transfer," "check"] to the respective parties' accounts.

7. Disclaimer: The parties acknowledge that the relationship established under this Agreement is limited to sharing profits generated from the specific activities or projects described in Section 4. This Agreement does not create any other legal or financial obligation between the parties beyond what is explicitly outlined here. Neither party has any obligation to share profits from activities or projects outside of this Agreement.

8. Confidentiality/Nondisclosure Requirements: Both parties agree to keep confidential any proprietary or sensitive information shared between them during the course of this Agreement, including financial data, business plans, intellectual property, and any other information designated as confidential. This obligation shall remain in effect throughout the term of this Agreement and for [Specify time period, e.g., "two years"] following its termination.

9. Non-Compete Clause (if applicable): During the term of this Agreement and for [Specify time period, e.g., "one year"] after its termination, neither party will engage in or enter into any business or activity that directly competes with the projects or activities described in this Agreement within [Specify geographic area, e.g., "the United States"].

10. Amendments: This Agreement may be amended only by a written document signed by both parties. Any changes to this Agreement must be discussed and agreed upon before they take effect.

11. Termination:

By Either Party: Either party may terminate this Agreement with [Specify notice period, e.g., 30 days] written notice.
For Cause: Either party may terminate this Agreement immediately if the other party breaches any material provision of the Agreement and fails to remedy the breach within [Specify time period, e.g., 10 days] after receiving written notice of the breach.
Effect of Termination: Upon termination, the parties will conduct a final accounting of all profits earned up to the termination date, and profits will be distributed according to the agreed percentages. Any outstanding liabilities, debts, or obligations will be settled before profit distribution.

12. Dispute Resolution and Remedies:

Negotiation: In the event of a dispute arising from this Agreement, the parties will first attempt to resolve the matter through informal negotiation.
Mediation/Arbitration: If negotiation fails, the parties agree to submit the dispute to mediation or binding arbitration under the rules of [Specify arbitration organization, if applicable].
Governing Law: This Agreement will be governed by the laws of [Specify State/Country].

13. Signatures: By signing below, the parties agree to the terms and conditions outlined in this Profit-Sharing Agreement.

This Agreement constitutes the entire understanding between the parties with respect to profit-sharing and supersedes all prior negotiations, discussions, or agreements, whether written or oral. It may not be amended or modified except by written agreement signed by both parties. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Signatures
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John Doe

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Jim Clark

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The Ins and Outs of Profit-Sharing Agreements

When it comes to business partnerships, one thing is certain: profits need to be split fairly and transparently. That's where profit-sharing agreements come in. These documents outline how a business's hard-earned profits will be doled out among partners and employees, ensuring everyone gets their fair share.

In this article, we'll break down the basics of profit-sharing agreements, including what they are, who needs them. and key terms to include. We'll also cover how profit sharing differs from revenue-sharing and some common percentage scenarios with examples.

After reading this, you'll be a profit-sharing pro! You'll know how to create a fair and clear agreement to help your business partnerships thrive.

What is a Profit Sharing Agreement?

When you're in business with others, a profit-sharing agreement is a lifesaver. This contract spells out how the profits will be divided among owners, partners, or employees. It's like a recipe for financial success, outlining how profits are calculated, distributed, and adjusted.

Think of it as a safety net that ensures everyone gets their fair share of the pie. Without it, you risk disagreements and misunderstanding. So get everything in writing and avoid the drama!

Who Needs This Agreement?

When you're in business with someone else, whether a partner, employee, or investor, you need to figure out how you're going to split the profits. That's where profit-sharing agreements come in.

Business Partners: For co-owners of a business, this agreement spells out how to divide the profits.
Employees: Some companies offer profit sharing as a perk to keep employees happy and motivated.
Joint ventures: When two or more companies team up for a project, they use a profit-sharing agreement to decide who gets what piece of the pie.
Investors: If you're bringing in outside money, a profit-sharing agreement helps determine how much you'll get back once the investment pays off.

Bottom line: A profit-sharing agreement keeps things fair and avoids messy disputes.

Most Important Terms to Include in This Agreement

When putting together a profit-sharing agreement, make sure to include these key terms:

Profit Calculation Method

When it comes to calculating profits before they're divided up, it's important to be clear about a few things:

Before or after taxes: Do you want to calculate profits before or after taxes are paid?
What expenses to subtract: Decide which expenses should be subtracted from revenue before calculating profits.

Having clear guidelines will help prevent any confusion or arguments later on.

Example: "Profits will be calculated every quarter after all operating expenses, salaries, and taxes have been deducted."

Distribution Schedule

The distribution schedule sets the pace for when the profits get divided up. Think of it like payday for the business. It could be monthly, quarterly, or yearly, depending on how the business runs and how much money it makes. A clear schedule helps everyone know when to expect their share and ensures the money gets paid on time.

Example: "Profit distributions will occur on the last day of each quarter, with the first distribution scheduled for March 31, 2024."

Percentage Allocation

The percentage allocation determines how the profits get split up among everyone involved. Think of it like dividing up the treasure after a successful adventure. The split can be based on how much ownership each person has, how much they contributed to the business or other agreed-upon factors. It's important to be clear about these percentages to avoid problems down the line.

Example: "Profits will be allocated as follows: 50% to Partner A, 30% to Partner B, and 20% to Partner C."

Adjustment Clauses

Adjustment clauses allow the agreement to be changed if the business or partnership changes. This could include adding new partners, changing ownership percentages, or if the business starts making more or less money. These clauses help keep the agreement fair and up-to-date.

Example: "In the event of a new partner joining the business, the profit-sharing percentages will be adjusted proportionately, subject to a new agreement among the partners."

Termination Clause

The termination clause spells out what happens if things don't work out. It states when the agreement can end, like if the business closes down, everyone agrees to stop, or if someone breaks the rules.

Example: "This agreement may be terminated by mutual consent of all parties or upon the dissolution of the business."

Profit Sharing Versus Revenue Sharing

While they might sound similar, profit and revenue sharing are different beasts.

Profit sharing: This is like dividing up the treasure after a successful adventure. The stakeholders get a share of the profits left after all the expenses, taxes, and costs have been paid. It's a reward for helping the business succeed.
Revenue sharing: This is more like splitting the loot before subtracting the expenses. Parties get a share of the total money the business made, even if it loses money overall. It's often used when people are entitled to a percentage of sales or total income, regardless of whether the business is making a profit.

What Are the Most Common Percentage Types?

There are a few ways to decide how to divide up the profits in a profit-sharing agreement:

Equal shares: Everyone gets a slice of the pie. This works well if everyone has contributed equally to the business.
Based on ownership: The bigger a person's slice of the business, the bigger their slice of the profits.
Performance-based: This rewards employees or partners based on their individual or team achievements. This means that instead of everyone getting an equal share of the profits, the amount each person receives is based on how well they perform.
Tiered system: Different percentages apply depending on how much profit is made.

For example:

For the first $100,000 earned: 50/50 split.
For profits over the first $100,000 earned: 60/40 split

It's all about finding a fair deal that works for everyone involved.

Why Should I Use Butterscotch?

Want to create a profit-sharing agreement without all the hassle? Simplify the process with Butterscotch's customizable templates! Here's why you'll love us:

Templates On Demand: Add the info you need, change whatever sections don't work, and make the template fit your needs. You can even personalize your contract by adding your personal branding.
Send with a Click: Forget printing, scanning, and mailing. Securely send contracts electronically!
Electronic Signatures: Get them signed with electronic signatures by all parties from anywhere.
Status Tracking: Monitor the status of every contract at a glance, from changes made and when another party has signed.
Centralized Storage: All your documents are securely stored in one digital location, accessible anytime, anywhere.

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