Free Profit Sharing Agreement Template

Free Profit Sharing Agreement Template

Business requires you to have a broader mind and the ability to think and make sound decisions. Many business owners usually have thoughts of collaborating with other individuals in business for a specific project to deliver a new service or product. This is advantageous because it gives you an excellent opportunity to benefit from each company and expertise on how to deliver a new product in the industry.

Suppose this happens, you might proceed to split the profit that you generate. This kind of partnership needs a solemn agreement when it comes to profit distribution. And ensure that whatever you agree on is recorded in writing to avoid unnecessary problems during disputes. This applies in the profit-sharing agreement alone. This comprehensive post will keep you updated about the profit-sharing agreement.

What Is a Profit-Sharing Agreement?

A profit-sharing agreement is a legal contract responsible for regulating the entire process of dividing partnership profits, especially between the involved parties. It has the primary purpose of formalizing how the parties should divide their profit, secure their position in the agreement, and determine who should participate in profit partitioning.

What is a Profit-Sharing Agreement Template?

A profit-sharing agreement template is a letter of agreement between two parties in partnership stating how they should share their profit. Bear in mind that this template can also be signed between an employee and a company. Here, employees can receive part of their profit topped up on their salary.

However, the employee’s salary usually depends on your company’s profit for a specific duration. You can make your profit-sharing agreement template via an online form builder or download it. This template guides you on how to document your profit-sharing agreement.

Profit-Sharing Agreement (PDF Template)


Profit-Sharing Agreement 20211031

Download: PDF


    When is a Profit Sharing Agreement Used?

    Business people commonly ask this question. You must understand that a profit-sharing agreement is utilized when two parties work together with the same goal for a specific timeline. Besides, this type of partnership is also called an unincorporated joint venture, where the two parties remain in partnership without initiating a new company for the sake of the project.

    When these parties work together, they are likely to bring and also exercise varying capabilities and skills to the project. This means profit division will reflect the split in risk and responsibilities between the two businesses. After the two parties agree on how they will share their profit, they document their agreement. Remember, this kind of documentation assists them in avoiding disputes and confusion in the future.

    Similarly, you can also use a profit-sharing agreement in independent and employment contractor scenarios. This applies to people who agree to split profits, especially for the parties they work for a particular duration.

    Essential Elements of a Profit Sharing Agreement

    To develop an outstanding profit-sharing agreement that keeps you protected, you must consider a few essential elements. Here is an overview of the profit-sharing agreement elements:

    Liabilities and indemnities

    Suppose issues arise under your entire agreement; the liability and indemnity determine how and to what extent both businesses will be liable. Likewise, it will specify if every party accepts to protect the other party and vice versa.

    Intellectual property

    Alongside partnership, parties usually share intellectual property or allow either party to utilize it. Therefore, this element will outline the intellectual property owner, and it will also outline more about the intellectual property made during your project course.

    Obligations

    There must be a section outlining what every business agrees to generate as part of the partnership. Each company is likely to make specific promises, such as delivering their complete services with sufficient care and skill.

    Confidentiality

    Both parties in the partnership must agree to keep their terms and agreement confidential. This section has the maximum potential to survive any given termination of your contract.

    Dispute resolution

    Suppose there is a dispute between the parties. You must feature a dispute resolution clause. This will bring the entire parties together to handle the issue before proceeding to make a claim. This element is very crucial since it ensures that both parties work in good faith. It also helps to avoid prolonged issues under your contract.

    Termination

    There is a section in the agreement stating under what conditions the profit-sharing agreement can undergo a termination.

    Profit-sharing

    The agreement must feature how you will split out profits between the parties. In many cases, this is usually represented in a percentage form. Here, you must cover multiple details: when the other party will get their profit, the time frame of sharing the profit, and how you will calculate the entire profit.

    How to Write a Profit-Sharing Agreement?

    Most people find it hard to write a profit-sharing agreement because they think it is tricky. The process of writing this agreement is straightforward. Both parties need to describe a profit-sharing process and ensure they regulate its critical parts during this process. Below are several steps to guide you when writing your profit-sharing agreement:

    Step 1- Introduction

    Your document must commence with a title, and this expresses the nature of your document. When you are through with the title, the involved parties should indicate their locations and names. This should also include their building number, street name, country, state, and zip code.

    Step 2- Relationship nature

    Here, you have to state the reasons for dividing profit. In this case, you can write down that you are dividing the profit because of the partnership, then have the parties designate the partnership relationship.

    Step 3- Subject

    Under this section, ensure you discuss as well as describe the sharing profit process. It must incorporate information about what is included in the agreement, how you will divide the profit, and how often it is likely to happen. In many cases, parties divide their profit according to the share they have invested in the company.

    Step 4- Parties responsibilities and right

    Most parties usually use this specific section to designate their significant responsibilities and rights. However, this depends on crucial aspects, like the condition agreed on by parties and the circumstances of their situations.

    Step 5- Governing law

    This is where parties write down the state law, and it must be under which agreement will be governed and construed.

    Step 6- Contact details

    Contact details are essential for notification purposes. Thus, all parties must provide their contact information, like email, telephone number, and postal address. This information will be utilized for your official notification and on the letter of agreement.

    Step 7- Signatures

    The profit-sharing agreement has to feature a signature and date from both parties to show that all parties agree. This also means that they have entered the agreement fully.

    FAQs

    What is a good percentage for profit-sharing?

    There is no profit sharing percentage. However, experts recommend that it should range between 2.5% to 7.5%. You must understand that in business, there is usually no set amount you must contribute each year. Still, you can talk about the maximum amount you can contribute, which is likely to fluctuate with the increase.

    Is profit-sharing an Ownership?

    Profit-sharing refers to a percentage of the company’s income, especially for investors and owners. Therefore, equity share relates to the size of ownership the business owner and the business investor feature. This gives both parties a sense of ownership, but it has some restrictions for making withdrawals. If you follow them well, you will not experience penalties.

    What is an example of revenue sharing?


    A fashion store wants to build its customer base and has sought a designer model to appear in their advertisement, marketing campaign and help them in the designing process. These parties agree that the profit will be shared between them, with the designer getting 85% and the fashion company acquiring 85% of the profit. This must be outlined in the profit-sharing agreement to allow both parties to feature a documented split of the profit share within a specific timeline. Furthermore, this will ensure that both parties get their profit as written.

    What are the disadvantages of profit sharing?

    Profit-sharing comes with advantages and advantages. Below are a few disadvantages of profit-sharing:
    • It might cause problems of entitlement
    • It is not promising on the guarantee of value
    • It alters the purpose of work being done
    • It is only good and effective when it is equal

    Conclusion

    A profit-sharing agreement assists you to do things orderly and avoid problems with the second party, especially over profit distribution. Therefore, if you partner with another business, you must always create a profit-sharing agreement because you need to split the profit in whatever service or product you deliver. On the other hand, the agreement must outline what occurs in a scenario of disputes, responsibilities, and roles of the business, intellectual property, confidentiality, and profit division. When engaging in a commercial contract, ensure that you are protected in all the profit-sharing agreement forms.