When two or more parties come together to start a business, one of the most important things to consider is how profits will be shared. A profit sharing agreement is a legal contract that outlines how profits will be distributed among the partners or shareholders of a business.
To help you create your own profit sharing agreement, we’ve put together a sample template that covers the key elements of such an agreement.
Introduction
The first section should include the names of all parties involved in the agreement, the name of the business, and the date the agreement was signed.
Purpose
This section should state the purpose of the agreement, which is to allocate the profits of the business among the partners or shareholders.
Profit Sharing Ratio
This section should specify the percentage or ratio of profits that each party will receive. It is important to define the exact percentage or ratio for each partner or shareholder to avoid any misunderstandings or disputes.
Distribution of Profits
This section outlines the process for distributing profits among the parties. It should specify when and how profits will be distributed, for example, on a monthly or quarterly basis.
Expenses
This section should outline how expenses will be handled and divided among the parties. It should also specify whether certain expenses, such as salaries or travel expenses, will be deducted before profits are distributed.
Ownership and Management
This section should outline the roles and responsibilities of each partner or shareholder in the business. It should also specify who is responsible for making the major decisions and how those decisions will be made.
Term and Termination
This section should specify the duration of the agreement and the conditions under which the agreement can be terminated. It should also outline the process for dissolving the business and dividing the remaining profits among the parties.
Dispute Resolution
This section should outline the process for resolving any disputes that may arise among the parties. It should also specify whether arbitration or litigation will be used to resolve disputes.
Final Provisions
The final section should include any other important information or provisions that are not covered in the previous sections.
Conclusion
Creating a profit sharing agreement is essential for any business that has more than one partner or shareholder. It helps to ensure that profits are distributed fairly and that all parties understand their roles and responsibilities. By using the sample template provided above, you can create a solid profit sharing agreement that will protect your interests and those of your partners or shareholders.
