Profit sharing takes many different forms, although each iteration involves sharing operating profits or losses among associated financial actors. The Profit sharing is used as an incentive program–a small business owner may pay partners or associates a percentage-based reward for referring new customers. Also the profit sharing is used to distribute profits that result from a business alliance.
The practical details for each type of profit/revenue sharing plan are different, but their conceptual purpose is consistent, using profits to enable separate actors to develop efficiencies or innovate in mutually beneficial ways. It has become a popular tool within corporate governance to promote partnerships, increase sales or share costs.
Profit sharing agreement in India is on the rise as the entities prefer to do alliance in profit and loss sharing instead of making the third party a part of entity or giving away share in the entity. These are flexible agreements which are used to team up the entity with a party which brings in expertise which is forecasted to increase the sales and in turn benefit both the owner/partner/director and the third party. These agreements are usually for a fixed period of time and fixed profit and loss ratio. The third party does not get any right in the entity or its assets. It is just collaboration between parties to increase Sales and Net Profit.
Definition of Net Profits. Net profits of the Venture shall be defined as gross profit from sales of products and shipping and handling profit received by the Venture; less chargebacks, refunds and returns, and less cost of goods, and less cost of sales chargeable to the Venture, and less cost of distribution/banner inventory acquisition chargeable to the Venture, and less actual cost of shipping and handling, and less any other charges to the Venture agreed upon by both parties.
Profit sharing is a somewhat flexible concept that involves sharing operating profits or losses among associated financial actors. Profit sharing can exist as a profit-sharing system that ensures each entity is compensated for its efforts. The growth of online businesses and advertising models has led to cost-per-sale profit sharing, which rewards every participant in an advertising network that contributed to making a sale happen.
COMPONENTS OF A VALID “AGREEMENT FOR PROFIT”
1. Term
2. Effect of Termination
3. Responsibilities of Representative
4. Profit/Loss Share
5. Independent Contractor
6. Confidentiality
7. Approval of Marketing Material
8. Expenses
9. Indemnification
10. No Modification Unless In Writing
11. Entire Agreement
12. Applicable Law
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