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Director Profit Sharing Agreement

Director Profit Sharing Agreement Template for Germany

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Key Requirements PROMPT example:

Director Profit Sharing Agreement

"I need a Director Profit Sharing Agreement under German law for our technology startup's new CFO, starting March 2025, with profit share calculations based on both EBITDA and specific technology development milestones."

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Document background
The Director Profit Sharing Agreement is a crucial document for German companies implementing performance-based compensation structures for their directors. This agreement is typically used when a company wants to align director compensation with company performance and shareholder interests, while ensuring compliance with German corporate law and governance requirements. The document becomes particularly relevant when appointing new directors or revising existing compensation structures, and is essential for both GmbHs and AGs operating under German law. It includes detailed provisions for profit calculation, performance metrics, payment terms, and tax treatment, while addressing specific requirements under German corporate governance standards. The agreement should be reviewed regularly to ensure continued alignment with changing business objectives and regulatory requirements.
Suggested Sections

1. Parties: Identification of the company and the director entering into the agreement

2. Background: Context of the agreement, director's role, and basis for profit sharing arrangement

3. Definitions: Key terms used throughout the agreement, including 'Profit', 'Financial Year', 'Performance Metrics', etc.

4. Term and Appointment: Duration of the profit sharing arrangement and its relationship to the director's appointment

5. Calculation of Profit Share: Formula and methodology for calculating the director's profit share

6. Payment Terms: Timing, frequency, and method of profit share payments

7. Performance Criteria: Specific metrics and targets that affect the profit share calculation

8. Company's Obligations: Company's responsibilities regarding financial reporting, calculations, and payments

9. Director's Obligations: Director's duties and responsibilities related to the profit sharing arrangement

10. Clawback Provisions: Circumstances under which the company may reclaim paid profit shares

11. Tax and Social Security: Treatment of tax and social security contributions on profit share payments

12. Termination: Circumstances and consequences of terminating the profit sharing arrangement

13. Confidentiality: Obligations regarding confidential information and financial data

14. Governing Law: Specification of German law as governing law and jurisdiction

Optional Sections

1. Good/Bad Leaver Provisions: Additional terms affecting profit share in case of different types of departure scenarios

2. Corporate Governance Requirements: Specific provisions for listed companies or those subject to additional governance requirements

3. Shareholders' Approval: Process for obtaining shareholder approval where required by law or articles

4. Non-Competition: Restrictions on competitive activities affecting profit share entitlement

5. Currency Conversion: Required for international directors or multi-currency profit calculations

6. Dispute Resolution: Specific procedures for resolving disputes about profit calculations or payments

7. Change of Control: Impact of company ownership changes on profit sharing arrangement

Suggested Schedules

1. Schedule 1 - Profit Calculation Methodology: Detailed formula and accounting principles for profit calculation

2. Schedule 2 - Performance Metrics: Detailed description of KPIs and their measurement

3. Schedule 3 - Payment Schedule: Timing and structure of payments throughout the financial year

4. Schedule 4 - Sample Calculations: Examples of profit share calculations in different scenarios

5. Schedule 5 - Approval Process: Steps and timeline for approval of profit share calculations

6. Appendix A - Relevant Board/Shareholder Resolutions: Copies of corporate approvals for the profit sharing arrangement

7. Appendix B - Tax Treatment Summary: Overview of applicable tax regulations and treatment

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant legal definitions
Agreement
Applicable Law
Base Salary
Board
Business Day
Change of Control
Company
Confidential Information
Director
EBITDA
Effective Date
Financial Year
Good Leaver
Bad Leaver
Gross Profit
Group
Holding Company
KPIs
Management Board
Net Profit
Parent Company
Payment Date
Performance Metrics
Performance Period
Profit
Profit Share
Profit Share Calculation
Profit Share Payment
Quarter
Related Companies
Relevant Market
Service Agreement
Shareholders
Subsidiary
Supervisory Board
Target Performance
Term
Termination Date
Threshold Performance
Working Day
Clauses
Interpretation
Appointment
Term
Profit Share Entitlement
Calculation Method
Performance Criteria
Payment Terms
Company Obligations
Director Obligations
Financial Records
Reporting Requirements
Audit Rights
Tax Treatment
Social Security
Confidentiality
Data Protection
Non-Competition
Non-Solicitation
Good/Bad Leaver Provisions
Termination
Clawback
Change of Control
Force Majeure
Assignment
Variation
Notices
Entire Agreement
Severability
Waiver
Third Party Rights
Costs
Dispute Resolution
Governing Law
Jurisdiction
Relevant Industries

Financial Services

Technology

Manufacturing

Professional Services

Retail

Healthcare

Real Estate

Energy

Telecommunications

Consumer Goods

Industrial Services

Media and Entertainment

Software and IT

Consulting

Relevant Teams

Legal

Human Resources

Finance

Compliance

Corporate Governance

Executive Office

Company Secretariat

Compensation and Benefits

Tax

Internal Audit

Relevant Roles

Managing Director (Geschäftsführer)

Board Member (Vorstand)

Executive Director

Chief Executive Officer

Chief Financial Officer

Chief Operating Officer

Regional Director

Country Manager

Division Director

Executive Vice President

Managing Partner

General Manager

Industries
German Stock Corporation Act (Aktiengesetz - AktG): Sections 87-87a govern the appropriateness of management board remuneration and requirement for a clear relationship between performance and variable compensation
German Commercial Code (Handelsgesetzbuch - HGB): Sections 285 and 314 mandate disclosure requirements for director remuneration in financial statements
German Income Tax Act (Einkommensteuergesetz - EStG): Regulates taxation of profit-sharing payments and variable compensation for directors
German Corporate Governance Code (Deutscher Corporate Governance Kodex): Provides recommendations for management board compensation structure and transparency
Social Security Code (Sozialgesetzbuch - SGB): Determines social security contributions on profit-sharing payments if director has employee status
Limited Liability Companies Act (GmbH-Gesetz): Governs profit distribution and management remuneration in GmbH companies
Works Constitution Act (Betriebsverfassungsgesetz): May apply if director has employee status, affecting certain aspects of compensation structure
German Civil Code (Bürgerliches Gesetzbuch - BGB): Contains general contract law provisions applicable to profit-sharing agreements
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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