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  1. #1
    Join Date
    Sep 2010

    Default Profit Sharing Agreement or Collaboration Agreement

    My question involves business law in the state of: California

    Basically the situation is a contact of mine approached me with an idea he had and told me all about it and it basically got down to us talking about doing it 50/50 profit wise. He is based in California ("Party A") and I am based in Australia ("Party B"), but the contract / agreement will be setup to run under California / US law.

    Now, he's a web designer and I'm a web developer, so we both have our roles sorted out - plus he will handle most of the business side of things and a lot of the marketing and at least initially most if not all the costs.

    Since we have been discussing it I have contributed a number of good ideas to the project, one of which is rather critical and from what I have seen is rather unique to what is currently on offer at the moment with our competitors - on top of that I also came up with the website / business name.

    So on the business side of things we have been talking of how it will work. We discussed a partnership idea but because of various reasons decided it's too messy / too much paperwork etc with us based in different countries plus he said he would prefer to keep controlling interest in it since the original idea was his - so like if he wanted to sell the company for example I couldn't stop him.

    So then we started talking about profit sharing and how that would all work; I started searching around the web and found out you can get sample contracts for a "Profit Sharing Agreement" or something else that may suit our case with that being a "Collaboration Agreement" - so I'm not sure really how much these differ and what would suit us best.

    Some points of note:

    • The business will be registered to Party A only

    So basically some points we want to cover:

    • Party B will receive 50% of ALL profits related to the business, but will not be responsible for any losses
    • Party B should also receive 50% of the sale price if the company is ever sold
    • Party A should have controlling interest in the company to have the final word on all decisions
    • If Party B fails to build the website within a specified amount of time, Party A can forfeit this agreement and find someone else to do the job - however, if this happens Party A will still need to pay Party B 10% of all profits for the website (+ 10% of any sale of the website) unless Party A removes features from the website that were the idea of Party B
    • All costs related to the website will be covered by Party A unless otherwise agreed
    • Financial documents (account statements, tax return etc) will be shared with Party B on request
    • Not sure the best way to handle this, would need some thought, but something to cover case where of either party didn't want to (or were unable to) maintain or update the website anymore - like they shouldn't just stop getting their 50%
    • Something to state when Party B will be paid their profits - like a schedule
    • Profits may be chosen to be reinvested back into the business by either party; said amount will need to be an equal agreed upon amount from both parties.

    Think I have covered everything unless anyone can think of anything else? But those are the main points.

    So anyway, basically wondering which of the two agreements would suit us better!?

    Thanks a lot!

  2. #2
    Join Date
    Mar 2013

    Default Re: Profit Sharing Agreement or Collaboration Agreement

    Hire a lawyer in CA to represent YOU and be willing to pay that lawyer a barrelful of money if you ever expect to be able to enforce that contract. Also be willing to travel to CA to go to court when the inevitable happens.

    I suggest putting aside about $30,000 toward the cost of potential litigation for when your friend keeps your money and stops responding to your calls and emails.

    If you think I'm painting a bleak picture, you're right. And it's because I've read thousands of these deals that have gone south just like yours is likely destined to do.

    No contract prevents somebody from doing you wrong. It just gives you recourse. But recourse is expensive when you have to wield it from the other side of the world.

  3. #3
    Join Date
    Sep 2010

    Default Re: Profit Sharing Agreement or Collaboration Agreement

    I have no issues going to CA if any issues come up. I'm aware issues can come up and that is exactly why I am to do things properly and get a contract done up to protect both parties. No it doesn't stop people doing you wrong, but it helps protect you against it somewhat.

    I have thought about not going into this, but because I really believe in the project I think I would lose out a lot if I was to pull out.

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