• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Subcontractor profit sharing with contractor who is sharing profit with the customer?

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

r00tb33r

Junior Member
What is the name of your state (only U.S. law)? Virginia

Situation: A software developer company wants to subcontract a portion of the design and implementation to me. However they are not able to offer me a fixed sum and instead want to set up profit sharing. Meanwhile they have a profit sharing agreement with the original customer, who would hold the rights to the product. Such an agreement effectively results in two levels of profit sharing.
I foresee some complexities with two levels of expense reporting and approval.

Question: Is this type of agreement possible, legally enforceable and what language should such agreement contain? If that is not possible, should I be having the profit sharing agreement directly with the customer who will be the rights holder?

Thank you.
 
Last edited:


quincy

Senior Member
What is the name of your state (only U.S. law)? Virginia

Situation: A software developer company wants to subcontract a portion of the design and implementation to me. However they are not able to offer me a fixed sum and instead want to set up profit sharing. Meanwhile they have a profit sharing agreement with the original customer, who would hold the rights to the product. Such an agreement effectively results in two levels of profit sharing.
I foresee some complexities with two levels of expense reporting and approval.

Question: Is this type of agreement possible, legally enforceable and what language should such agreement contain? If that is not possible, should I be having the profit sharing agreement directly with the customer who will be the rights holder?

Thank you.
Any contract that is created will be between you and the software developer company and not between you and the company's customer/client.

You and the company can agree to have you paid from the profit share of the company (i.e., you would get a share of their share). So, yes, this type of agreement is possible and legally enforceable once a contract is drafted and agreed to and signed by both you and the company.

As to the language and terms of the contract, how to word or structure the agreement goes beyond the scope of this forum. The company is responsible for drafting the contract and its terms, and you can either agree to these terms or negotiate the terms or walk away from the job offer.

It would be smart for you to have an attorney in your area review any contract before you sign it.
 

r00tb33r

Junior Member
Any contract that is created will be between you and the software developer company and not between you and the company's customer/client.

You and the company can agree to have you paid from the profit share of the company (i.e., you would get a share of their share). So, yes, this type of agreement is possible and legally enforceable once a contract is drafted and agreed to and signed by both you and the company.

As to the language and terms of the contract, how to word or structure the agreement goes beyond the scope of this forum. The company is responsible for drafting the contract and its terms, and you can either agree to these terms or negotiate the terms or walk away from the job offer.

It would be smart for you to have an attorney in your area review any contract before you sign it.
Thank you for taking the time to reply to my question.

Are you a licensed attorney? (yes/no question)

Well, the reality is not quite as you put it. It's a small outfit that just formed (registered two weeks ago). They have no experience or ability to write the contracts. I was tasked with coming up with my own agreement that they would look over, amend if needed, and sign. Hence why I'm here. Make sense now? So they have/will have projects, bit I am invited into some but not all of them. Hence why I can't just earn a share of their business, only from specific product(s). The problem is that they won't have rights to those product(s). How can they promise me a profit share from a product they don't own?

Since I'm to come up with the agreement and bring it to them, I have done some research and I am not comfortable with the two levels of profit sharing. So I need good facts to form good arguments against this arrangement, because it seems that I like the following two arrangements better:
1. Run a joint business for the product(s) in question, where each member owns a stake of the business, so there is only one agreement between the customer and the new business, resulting in just one level of profit sharing agreements.
2. Make a profit sharing agreement with the customer, so my agreement is with the actual rights holder. I don't really think it's that big of a deal considering I've met with this customer several times now.

So I'm trying to figure out if my concerns are unfounded, or if they are valid, what good argument I can come up with to justify asking for one of the two above arrangements.

PS I can't afford an attorney at the moment, I'll be eating my leather shoes next week, literally.
 

quincy

Senior Member
Thank you for taking the time to reply to my question.

Are you a licensed attorney? (yes/no question)

Well, the reality is not quite as you put it. It's a small outfit that just formed (registered two weeks ago). They have no experience or ability to write the contracts. I was tasked with coming up with my own agreement that they would look over, amend if needed, and sign. Hence why I'm here. Make sense now? So they have/will have projects, bit I am invited into some but not all of them. Hence why I can't just earn a share of their business, only from specific product(s). The problem is that they won't have rights to those product(s). How can they promise me a profit share from a product they don't own?

Since I'm to come up with the agreement and bring it to them, I have done some research and I am not comfortable with the two levels of profit sharing. So I need good facts to form good arguments against this arrangement, because it seems that I like the following two arrangements better:
1. Run a joint business for the product(s) in question, where each member owns a stake of the business, so there is only one agreement between the customer and the new business, resulting in just one level of profit sharing agreements.
2. Make a profit sharing agreement with the customer, so my agreement is with the actual rights holder. I don't really think it's that big of a deal considering I've met with this customer several times now.

So I'm trying to figure out if my concerns are unfounded, or if they are valid, what good argument I can come up with to justify asking for one of the two above arrangements.

PS I can't afford an attorney at the moment, I'll be eating my leather shoes next week, literally.
There is SO much that is wrong with what you are considering that both you and this new company should seek out the help of an attorney in your area for guidance prior to thoughts of taking on any clients.

If you or the company cannot afford to hire an attorney, I suggest you look for legal aid clinics or a law school in your area to assist.

What you are asking of this forum, however, is outside of its scope, for both the attorneys on this forum and for the non-attorney members. Sorry.

I can tell you that you, as subcontractor, will not be part of the contract formed between the contractor and the client. Your contract will be with the contractor alone.

Good luck.
 

Just Blue

Senior Member
Thank you for taking the time to reply to my question.

Are you a licensed attorney? (yes/no question)

Well, the reality is not quite as you put it. It's a small outfit that just formed (registered two weeks ago). They have no experience or ability to write the contracts. I was tasked with coming up with my own agreement that they would look over, amend if needed, and sign. Hence why I'm here. Make sense now? So they have/will have projects, bit I am invited into some but not all of them. Hence why I can't just earn a share of their business, only from specific product(s). The problem is that they won't have rights to those product(s). How can they promise me a profit share from a product they don't own?

Since I'm to come up with the agreement and bring it to them, I have done some research and I am not comfortable with the two levels of profit sharing. So I need good facts to form good arguments against this arrangement, because it seems that I like the following two arrangements better:
1. Run a joint business for the product(s) in question, where each member owns a stake of the business, so there is only one agreement between the customer and the new business, resulting in just one level of profit sharing agreements.
2. Make a profit sharing agreement with the customer, so my agreement is with the actual rights holder. I don't really think it's that big of a deal considering I've met with this customer several times now.

So I'm trying to figure out if my concerns are unfounded, or if they are valid, what good argument I can come up with to justify asking for one of the two above arrangements.

PS I can't afford an attorney at the moment, I'll be eating my leather shoes next week, literally.
It really does not take an Attorney to see, based on your posting, that you NEED one.

Good Luck
Blue
Nonattorneyperson ;)
 

r00tb33r

Junior Member
It really does not take an Attorney to see, based on your posting, that you NEED one.

Good Luck
Blue
Nonattorneyperson ;)
Okie Dokie, I will see what I can get out of some free consultations with local business attorneys. Considering nobody has any money the lawyer thing is more of a problem than a solution.

Thanks!
 

quincy

Senior Member
Okie Dokie, I will see what I can get out of some free consultations with local business attorneys. Considering nobody has any money the lawyer thing is more of a problem than a solution.

Thanks!
There are some legal issues that people can handle adequately on their own. I just don't see, in what you are describing in your posts, that this is one of those legal issues.

It seems especially important for a new software development company, that does not yet have business experience, or the knowledge and ability to handle contractual matters, to have legal assistance.

Although attorneys are admittedly costly, they are an expense that should be part of any initial business budget - this to avoid legal problems that can put a quick end to the business. Consultations with a few business law attorneys in your area is a good place to start.

Good luck.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top