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Enter the full legal name of this party exactly as it appears on their ID or business registration.
Enter the full legal name of this party exactly as it appears on their ID or business registration.
A Profit Sharing Agreement is the binding contract between two or more parties — co-founders, business partners, investors, or employees — that defines how profits generated by a business, project, or investment are calculated, allocated, and distributed. One of the most frequently misunderstood and litigation-prone documents in business law because parties often agree on a percentage but disagree on what 'profit' means. This template defines 'Net Profit' with precision, sets out the allocation schedule, addresses capital account treatment, and establishes audit rights. Fill out this free profit sharing agreement template online, e-sign it digitally, and download a legally valid PDF. no account or lawyer needed. Sections: Parties, Profit Sharing Terms.
This Profit Sharing Agreement (the "Agreement") is entered into as of ______________ by and between ______________, located at ______________ ("Party A"), and ______________, located at ______________ ("Party B") (collectively, the "Parties").
The Parties have engaged in or intend to engage in the following business, project, or venture (the "Venture"): ______________. This Agreement governs the allocation and distribution of profits generated by the Venture.
Subject to the terms of this Agreement, Net Profits of the Venture shall be shared between the Parties in the following proportions: • Party A (______________): 50% • Party B (______________): 50% The Parties confirm that these percentages total 100%. Any change to the profit sharing percentages must be made by a written amendment signed by both Parties.
"Net Profit" for any period means: ______________. The Parties acknowledge that the definition of Net Profit is a material term of this Agreement and that any future dispute regarding the calculation of Net Profit shall be governed by the definition set forth above. Neither Party shall manipulate operating expenses, intercompany charges, or overhead allocations in a manner designed to reduce Net Profit distributions to the other Party.
The Parties shall maintain complete and accurate books of account for the Venture on an accrual basis in accordance with generally accepted accounting principles (GAAP), consistently applied. Each Party shall have the right, at any time and upon 5 business days' written notice, to inspect and audit the books and records of the Venture. The cost of any audit shall be borne by the requesting Party unless the audit reveals an underpayment in excess of 5% of the amount due, in which case the non-requesting Party shall bear the audit costs.
Net Profits shall be calculated and distributed ______________ as follows: (a) At the end of each ______________ period, the Party responsible for financial management shall calculate the Net Profit for the period; (b) After setting aside any required reserves, each Party shall receive their proportionate share of Net Profits within 15 days of the end of each period; (c) Each distribution shall be accompanied by a written accounting statement showing gross revenue, itemized expenses, Net Profit calculation, and each Party's allocation.
Before making any distribution, the Venture shall maintain a minimum cash reserve of $10,000.00 for working capital and ordinary business expenses. This reserve requirement may be adjusted by mutual written agreement of the Parties. No distributions shall be made if such distribution would cause the Venture's cash balance to fall below the minimum reserve.
In the event the Venture generates a net loss in any period, such loss shall be allocated between the Parties in the same proportions as Net Profit (50% to Party A and 50% to Party B), unless the Parties agree otherwise in writing. Losses shall reduce each Party's capital account balance in the Venture. No Party shall be required to make additional capital contributions to cover operating losses, unless agreed in a separate capital contribution agreement.
This Agreement does not grant either Party authority to bind the Venture or the other Party without separate written authorization. The Parties shall agree separately on management roles, decision-making authority, and signing authority for the Venture. Financial decisions exceeding $____________ shall require the written approval of both Parties.
Unless the Parties have separately agreed in writing to form a partnership or other legal entity, this Agreement does not create a partnership, joint venture, or other legal entity. Each Party acts as an independent party and is responsible for its own tax obligations on its share of profits. The Parties shall each receive a Form K-1 or equivalent information return reflecting their allocable share of income, gains, losses, and deductions from the Venture.
This Agreement shall remain in effect until: (a) the Venture is completed or dissolved; (b) the Parties mutually agree in writing to terminate this Agreement; or (c) either Party provides 90 days' written notice of termination. Upon termination, a final accounting shall be performed, all outstanding amounts shall be distributed, and any disputes shall be resolved pursuant to Section 11.
Any dispute arising from or relating to this Agreement shall first be submitted to good-faith mediation between the Parties. If mediation fails to resolve the dispute within 60 days, the dispute shall be submitted to binding arbitration under the rules of the American Arbitration Association (AAA). The costs of arbitration shall be shared equally unless the arbitrator awards costs to the prevailing party.
This Agreement shall be governed by and construed in accordance with the laws of the State of ______________, without regard to its conflict-of-laws principles.