Free Template
Profit Share Contract Template
Updated August 30, 2025
A profit share agreement is a contract that defines how profits for a business will be calculated, distributed, and adjusted among owners, partners, or employees. This ensures fairness, protection, and prevents disputes among stakeholders.
With a profit share agreement, everyone gets their fair share of their hard-earned cash. Going without one means you're risking disagreements and misunderstandings.
Who Needs a Profit-Sharing Agreement?
When you're in business with someone else, whether a partner, employee, or investor, you need to figure out how profits will be split.
- Business Partners: For co-owners of a business or LLC, 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 may use a profit-sharing agreement to decide how funds are allocated.
- Investors: If you're bringing in an outside investor, a profit-sharing agreement helps determine how, but also when, profits are divided with any additional interest added.
A profit-sharing agreement keeps business dealings fair, and avoids messy and costly disputes.
Important Terms to Include in a Profit-Sharing Agreement
Make sure to include these key sections in your profit-sharing contract:
Profit Calculation Method
When it comes to calculating profits before they're divided, be clear about the initial funds:
- Tax scenario: Do you want to calculate profits before or after taxes are paid?
- Expenses: Decide which expenses should be subtracted from revenue before calculating profits.
Having clear guidelines are crucial for business contracts, so don’t skimp on these details.
Example: "Profits will be calculated every quarter after all operating expenses, salaries, and taxes have been deducted."
Distribution Schedule
The distribution schedule sets the timing for when the profits get divided up. It can 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 the partners, and is up to the parties involved. It 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 over time. 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
What happens to a profit-holder’s share if they or the rest of the parties decide to terminate their business relationship? This clause states when the agreement can end, like if the business closes down, everyone agrees to end the relationship, or if someone breaks one of the rules set forth by the other profit-sharers.
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 differ in the following ways:
- Profit sharing: Profit is defined as the money made after all the business expenses are taken out of the total money made. This means that for a profit-sharing agreement, the dividends are split up after all the other deductions are made.
- Revenue sharing: Revenue is the amount of money a business makes before expenses like payroll, taxes and costs of running the business. 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 an equal amount. 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
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Profit-Sharing Agreement
Jim Clark Co.
TermsThis Profit-Sharing Agreement ("Agreement") is made and entered into on [Start Date], by and between the following parties:
ParticipantsTerms1. 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-
Click to signJohn Doe
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Click to signJim Clark
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