Profit clause: Copy, customize, and use instantly
Introduction
A profit clause outlines how profit is defined, calculated, shared, or used in a business relationship. It ensures that both parties are aligned on what constitutes profit—whether gross, net, or operating—and how it affects payments, distributions, performance targets, or decision-making. Clear profit clauses help avoid disputes, especially in joint ventures, earnout deals, licensing agreements, or cost-sharing arrangements.
Below are templates for profit clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard net profit definition clause
Provides a straightforward formula for calculating net profit in the agreement.
“Net Profit” means total revenue earned minus all direct and indirect costs, including operating expenses, taxes, interest, depreciation, and amortization, calculated in accordance with generally accepted accounting principles (GAAP).
Profit sharing clause based on net profit
Outlines how net profit will be split between the parties.
Net profit shall be allocated 60% to [Party A] and 40% to [Party B], based on quarterly profit statements. Payments shall be made within 30 days of quarter-end, accompanied by a detailed breakdown.
Profit clause with minimum profit guarantee
Protects one party by requiring a baseline profit to be achieved.
[Party A] guarantees a minimum annual profit of $250,000 from the venture. If actual profit falls below this threshold, [Party A] shall make a top-up payment to [Party B] equal to the shortfall.
Profit clause with performance-linked bonus
Connects bonus payments to profit outcomes.
If annual net profit exceeds $1,000,000, [Party B] shall receive a bonus equal to 10% of the amount exceeding that threshold, payable within 45 days of fiscal year-end.
Profit clause with tiered profit distribution
Uses profit bands to adjust how profit is shared.
Profit shall be shared as follows: first $500,000 at a 50/50 split; next $500,001 to $1,000,000 at 60/40 in favor of [Party A]; any profit above $1,000,000 shall be split 70/30.
Profit clause with reinvestment priority
Specifies how profit should be handled before distribution.
Before any profit distribution, 20% of net profit shall be reinvested into the business for capital improvements and future development, as jointly agreed.
Profit clause with fixed expense deduction model
Simplifies profit calculation using pre-approved cost deductions.
Net profit shall be calculated by deducting a fixed operating cost of $150,000 per quarter from gross revenue, regardless of actual cost fluctuations.
Profit clause with audited profit confirmation
Adds a requirement for third-party verification before sharing profit.
All profit figures shall be independently audited by a certified public accountant prior to any distribution or profit-based compensation.
Profit clause with loss carry-forward treatment
Clarifies how losses from prior periods affect future profit.
Any net loss incurred in a prior fiscal year shall be carried forward and deducted from future profits before calculating any distributable amounts.
Profit clause with partner-specific profit pool
Segregates profit for different activities or contributions.
A separate profit pool shall be maintained for activities performed by [Party B], with all expenses and revenues from such activities tracked independently from the main profit calculation.
Profit clause with profit-sharing based on contribution ratio
Links profit distribution to each party’s relative business input.
Profit shall be distributed in proportion to the parties’ respective contributions of capital, labor, or assets, as documented in Schedule A. The contribution ratio shall be reviewed annually.
Profit clause with monthly interim distributions
Allows profits to be paid out on a rolling basis rather than quarterly or annually.
Interim profit distributions shall be made on the 15th of each month, based on unaudited monthly profit statements. Any end-of-year adjustments will reconcile prior distributions.
Profit clause with operating profit basis
Uses operating profit instead of net profit to avoid disputes over financing and taxes.
Profit sharing shall be calculated based on operating profit, defined as total revenue less cost of goods sold and operating expenses, excluding interest and taxes.
Profit clause with fixed percentage cap on distribution
Limits the total profit that can be distributed within a specific period.
Profit distributions shall not exceed 70% of total net profit in any fiscal year. The remainder shall be retained in the business for reinvestment or reserves.
Profit clause with deferred profit distribution mechanism
Delays payment of profit share until financial conditions are met.
Profit share shall be accrued quarterly but only distributed after the business maintains a minimum cash reserve of $500,000.
Profit clause with service-based bonus layering
Adds a bonus layer on top of profit share for exceptional services.
In addition to standard profit share, [Party B] shall receive a service performance bonus of 5% of profit if predefined service delivery KPIs are exceeded.
Profit clause with performance clawback mechanism
Protects the business from over-distribution if profit targets are later missed.
If profit targets are not met at year-end, any excess profit share paid during the year shall be subject to clawback from [Party B] within 30 days of final reconciliation.
Profit clause with reinvestment matching requirement
Makes distribution conditional on matching reinvestment contributions.
Profit distributions shall only proceed if each party matches 25% of their share by reinvesting an equal amount into the business’s capital fund.
Profit clause with milestone-triggered distribution
Releases profit only upon reaching business milestones.
Profit shall not be distributed until all business milestones outlined in Schedule B are achieved. Thereafter, distributions shall follow a 60/40 split.
Profit clause with audit reserve fund
Sets aside a portion of profit for audit or compliance costs.
5% of annual profit shall be allocated to an audit reserve fund to cover any external audit or regulatory costs before distribution to partners.
Profit clause with product-line-specific profit reporting
Separates profits by product or service lines to reflect actual performance.
Profit shall be calculated and distributed separately for each product line. Cross-subsidization between product lines is not permitted without prior written agreement.
Profit clause with minimum capital reserve clause
Prevents profit distribution if financial reserves are too low.
No profit shall be distributed unless the business maintains a minimum capital reserve of $250,000 at the end of each quarter.
Profit clause with rolling average threshold
Uses a rolling average to stabilize payout levels.
Profit distribution shall be based on a rolling 12-month average of net profit to reduce variability in payout levels and ensure long-term sustainability.
Profit clause with customer retention bonus multiplier
Adds a profit multiplier based on customer retention.
If customer retention exceeds 90% over a fiscal year, [Party B]’s profit share shall be increased by 10% of their normal share for that period.
Profit clause with investment recoupment trigger
Allows one party to recoup investment before profit sharing begins.
[Party A] shall recoup its initial investment of $400,000 from profits before any profit distribution is made to [Party B].
Profit clause with quarterly forecasting requirement
Requires advance projections to manage expectations.
Prior to each quarter, [Party A] shall submit a profit forecast to [Party B], outlining expected revenue, costs, and estimated shareable profit for planning purposes.
Profit clause with fixed margin threshold
Triggers distribution only above a minimum profit margin.
Profit shall only be shared if the business achieves a net profit margin of at least 12% for the reporting period.
Profit clause with unequal share during ramp-up
Temporarily alters profit share during early-stage growth.
During the first 12 months, profit shall be distributed 80% to [Party A] and 20% to [Party B] to reflect startup risk. Thereafter, standard sharing terms shall apply.
Profit clause with profit pool bonus tier
Adds a discretionary bonus pool from profits.
A separate bonus pool equal to 5% of annual net profit shall be created and distributed at management’s discretion based on team performance.
Profit clause with investment multiple exit share
Links profit share at exit to total capital returned.
In the event of an exit, [Party B] shall receive profit equal to 3x its invested capital before other profits are distributed among parties.
Profit clause with weighted contribution model
Uses a scoring system to determine share.
Profit share shall be calculated based on a weighted model considering capital (40%), time investment (30%), and business impact (30%), with weightings reviewed annually.
Profit clause with sector-specific deduction rules
Tailors profit calculation to industry norms.
Profit shall be calculated using sector-specific standard deduction practices, including cost adjustments typical in the [industry] sector.
Profit clause with partner priority distribution
Gives one party priority profit share up to a fixed cap.
[Party A] shall receive the first $150,000 of annual profit before the remaining profit is distributed according to agreed percentages.
Profit clause with deferred vesting on profit rights
Links share rights to time or milestones.
[Party B]’s profit rights shall vest over 24 months. Until fully vested, distributions shall be paid into a reserve account and released upon milestone completion.
Profit clause with quarterly dividend and annual bonus split
Creates structured distribution layers.
Each quarter, 50% of profit shall be distributed as dividends. Remaining profit shall be pooled and paid out as an annual bonus based on strategic performance criteria.
Profit clause with dispute resolution trigger
Defines how to resolve disagreements in profit calculation.
If either party disputes a profit calculation, the matter shall be referred to an independent auditor whose decision shall be final and binding.
Profit clause with capped year-end distribution
Limits distribution exposure to conserve capital.
Year-end profit distributions shall be capped at 60% of annual profit. The remaining amount shall remain in business reserves unless released by joint approval.
Profit clause with real-time reporting requirement
Ensures transparent monitoring throughout the year.
[Party A] shall provide real-time access to profit reporting dashboards showing revenue, cost, and profit performance metrics, updated weekly.
Profit clause with return on investment threshold
Requires a minimum ROI before profit can be distributed.
Profit shall only be distributed if the business achieves a minimum ROI of 15% over the previous fiscal year.
Profit clause with contribution clawback clause
Reclaims distributed profit if one party withdraws early.
If [Party B] exits the agreement within the first two years, previously received profit share shall be repaid on a pro-rata basis.
Profit clause with end-of-term reconciliation
Final profit review before contract closure.
Upon contract expiration, a full profit reconciliation shall be conducted to ensure all outstanding payments or profit entitlements are resolved.
Profit clause with restricted reinvestment zone
Limits what profit may be reinvested into.
Profit reinvestment shall be restricted to growth, technology, or expansion initiatives. Use for general overhead or unrelated projects is not permitted.
Profit clause with non-cash distribution option
Allows payout flexibility.
Either party may elect to receive profit share in cash or equivalent business equity at an agreed valuation, subject to mutual agreement each quarter.
Profit clause with service fee offset
Offsets service charges before calculating profit share.
Any outstanding service fees owed by [Party B] shall be deducted from its profit share prior to distribution each quarter.
Profit clause with reserve release schedule
Controls timing of withheld profit distributions.
Withheld profit reserves shall be released in three equal installments over the next fiscal year, subject to business liquidity status.
Profit clause with extraordinary item adjustment
Excludes one-off costs or gains from profit.
Profit shall be calculated excluding extraordinary items such as asset sales, legal settlements, or restructuring costs.
Profit clause with combined earnings pool
Combines multiple profit streams before sharing.
Profit from all business units shall be pooled and distributed jointly, rather than by unit, to encourage cross-functional collaboration and growth.
Profit clause with preferred equity share
Creates preferential profit access for one party.
[Party A], as a preferred equity holder, shall receive 8% of annual profit before common profit share distributions begin.
Profit clause with risk-weighted distribution
Balances profit share based on each party’s assumed risk.
Profit shall be distributed according to each party’s risk exposure under the agreement, with [Party A] receiving 70% due to higher capital risk, and [Party B] receiving 30% for operational contributions.
Profit clause with exit-triggered bonus pool
Creates a profit bonus only upon business exit.
In the event of a business sale or exit event, 10% of cumulative net profit shall be allocated to a one-time bonus pool and distributed to designated stakeholders before final closing.
Profit clause with non-voting party profit entitlement
Allows silent partners to share profit without governance rights.
[Party B], as a non-voting investor, shall be entitled to 15% of annual net profit, payable quarterly, despite not participating in business management decisions.
Profit clause with phased share increase
Gradually increases share over time.
[Party B] shall receive 20% of profit in Year 1, 25% in Year 2, and 30% from Year 3 onward, reflecting increased contribution and business maturity.
Profit clause with automatic reinvestment threshold
Auto-routes profit into business if under a set level.
If quarterly net profit is less than $50,000, 100% shall be reinvested and no distributions made for that period.
Profit clause with board discretion override
Gives the board the right to modify distributions.
The board of directors reserves the right to adjust profit distribution percentages annually based on market conditions and strategic priorities.
Profit clause with dedicated innovation fund allocation
Diverts a portion of profit to future R&D.
10% of annual profit shall be earmarked for an innovation fund used solely for research, product development, and new business initiatives.
Profit clause with special dividend mechanism
Provides ad hoc profit distributions outside the standard schedule.
In addition to regular profit distribution, the parties may declare a special dividend from surplus retained profit at any time by mutual agreement.
Profit clause with hybrid equity-profit scheme
Combines fixed equity-based payouts with profit sharing.
[Party B] shall receive a fixed equity dividend plus a 10% share of net profit, giving dual upside from both capital ownership and operating performance.
Profit clause with breakeven safeguard
Restricts profit sharing before breakeven is achieved.
No profit shall be distributed until the business achieves breakeven based on total cumulative revenue and expenses since inception.
Profit clause with asset-specific revenue exclusion
Excludes certain revenue streams from profit share calculation.
Revenue generated from Asset X shall be excluded from profit calculations for distribution, as it falls outside the scope of the agreement.
Profit clause with accelerated payment structure
Speeds up distribution for high-profit periods.
If quarterly profit exceeds $250,000, distributions shall be accelerated and made within 10 business days rather than the standard 30-day cycle.
Profit clause with holding company distribution route
Routes profits through a parent entity before distribution.
All profit shall be first transferred to the holding company, [Holding Co Name], which will then distribute shares to partners in accordance with their ownership percentages.
Profit clause with cross-entity allocation method
Distributes profit across multiple legal entities.
Profit shall be allocated across [Party A], [Party B], and [Party C] based on their respective operational roles, not just equity stakes, as outlined in Schedule D.
Profit clause with discretionary holdback buffer
Permits temporary withholding of share.
Up to 20% of any profit distribution may be temporarily held back at management’s discretion in anticipation of operational needs or volatility.
Profit clause with shared performance index trigger
Activates enhanced sharing based on collective performance.
If the shared business performance index exceeds 90 points in any quarter, an additional 5% profit share shall be granted to [Party B].
Profit clause with transparent allocation ledger
Requires tracking and disclosure of all profit allocations.
A detailed profit allocation ledger shall be maintained and made available to all parties quarterly, outlining all distributions, reinvestments, and reserves.
Profit clause with ESG-linked bonus share
Ties additional profit to sustainability goals.
If the business meets its environmental and social responsibility targets for the fiscal year, [Party B] shall receive a 2% bonus profit share on top of standard distributions.
Profit clause with founder override clause
Gives founders decision-making authority on profit distribution.
Notwithstanding other provisions, [Founder Name] shall have the authority to override profit distribution terms in exceptional cases by written notice to all parties.
Profit clause with license-based profit carve-out
Allocates profit from a specific licensed product separately.
Profit attributable to the licensed use of [Product Name] shall be tracked independently and shared 50/50 between the parties, separate from general business profit.
Profit clause with retention-based allocation
Links share to length of engagement.
[Party B]’s profit share shall increase by 1% for every 12-month period of continuous engagement with the business, up to a maximum of 10%.
Profit clause with retroactive equity adjustment
Allows reallocation of profit share based on adjusted equity.
If equity holdings are rebalanced retroactively, prior profit distributions shall be recalculated accordingly and any overpayments or shortfalls corrected within 60 days.
Profit clause with annual liquidity buffer requirement
Protects financial stability before distribution.
No profit shall be distributed if doing so would cause the business to fall below a 6-month operating liquidity reserve, as calculated at the end of each quarter.
Profit clause with dispute arbitration trigger
Clarifies how disagreements over profit terms are resolved.
Any dispute regarding profit calculation or allocation shall be resolved by binding arbitration under the rules of [Arbitration Body], with both parties agreeing to final determination.
Profit clause with regulatory compliance safeguard
Ensures profit sharing doesn’t breach legal or compliance limits.
Profit distributions shall be made only to the extent that such payments do not breach local tax, financial, or corporate law compliance obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.