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Director Profit Sharing Agreement

Director Profit Sharing Agreement Template for India

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Key Requirements PROMPT example:

Director Profit Sharing Agreement

"I need a Director Profit Sharing Agreement for our tech startup that will give our newly appointed Executive Director a 2% share of annual net profits, effective from January 2025, with quarterly payments and standard termination provisions."

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Document background
The Director Profit Sharing Agreement is essential for Indian companies seeking to implement performance-linked compensation structures for their directors. This document becomes necessary when a company wishes to align director compensation with company performance through profit sharing arrangements. It must comply with the Companies Act, 2013, particularly Sections 197 and 198 regarding managerial remuneration, along with relevant SEBI regulations for listed companies. The agreement typically includes detailed provisions for profit calculation, distribution mechanisms, payment schedules, and statutory compliance requirements. It's particularly relevant for growing companies, listed entities, and organizations implementing performance-based compensation structures. The document serves as a legal framework ensuring transparency in director compensation while maintaining compliance with regulatory requirements.
Suggested Sections

1. Parties: Identification of the Company and the Director entering into the profit sharing arrangement

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

3. Definitions: Key terms including 'Profit', 'Financial Year', 'Net Profits', 'Applicable Laws', and other relevant definitions

4. Appointment and Term: Confirmation of director's appointment and duration of the profit sharing arrangement

5. Profit Sharing Structure: Core terms of the profit sharing arrangement, including percentage share and calculation basis

6. Calculation Methodology: Detailed method for calculating the profit share, including applicable adjustments and exclusions

7. Payment Terms: Timing, method, and conditions for profit share payments

8. Statutory Compliance: Compliance with Companies Act and other applicable laws regarding managerial remuneration

9. Tax Provisions: Treatment of tax obligations and responsibilities of both parties

10. Confidentiality: Provisions regarding confidentiality of the agreement terms and company information

11. Termination: Circumstances and process for terminating the profit sharing arrangement

12. Governing Law and Jurisdiction: Specification of Indian law as governing law and jurisdiction for disputes

Optional Sections

1. Non-Competition: Restrictions on competitive activities, used when director has access to sensitive business information

2. Corporate Governance Requirements: Additional provisions for listed companies to comply with SEBI regulations

3. Minimum Guarantee: Minimum guaranteed payment provisions, used when offering a base amount regardless of profit

4. Multiple Director Provisions: Special provisions when agreement is part of a broader profit sharing scheme with multiple directors

5. Claw-back Provisions: Terms for recovering payments in case of financial restatements or misconduct

6. Performance Criteria: Additional performance-based conditions for profit share eligibility

7. Insurance and Indemnity: Additional protection for directors, particularly in high-risk industries

Suggested Schedules

1. Schedule 1 - Profit Calculation Framework: Detailed methodology and formulas for calculating distributable profits

2. Schedule 2 - Payment Schedule: Timing and structure of profit share payments including any interim payments

3. Schedule 3 - Statutory Limits: Reference to applicable statutory limits under Companies Act and other regulations

4. Schedule 4 - Performance Metrics: Detailed performance criteria if profit sharing is linked to specific targets

5. Appendix A - Board Resolution: Copy of board resolution approving the profit sharing arrangement

6. Appendix B - Shareholders' Resolution: Copy of special resolution if required under Companies Act

7. Appendix C - Compliance Certificates: Required statutory compliance certificates and forms

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
Clauses
Interpretation
Appointment
Term and Duration
Profit Share Calculation
Payment Terms
Performance Criteria
Statutory Compliance
Regulatory Requirements
Board Approval
Shareholder Approval
Confidentiality
Non-Competition
Tax Obligations
Representations and Warranties
Indemnification
Force Majeure
Termination
Consequences of Termination
Notices
Assignment
Amendment
Severability
Entire Agreement
Waiver
Governing Law
Dispute Resolution
Clawback
Record Keeping
Audit Rights
Good Faith
Corporate Governance
Compliance with Ethics
Further Assurance
Relevant Industries

Technology

Manufacturing

Financial Services

Professional Services

Retail

Healthcare

Real Estate

Construction

Energy

Telecommunications

Media and Entertainment

Fast-Moving Consumer Goods

Pharmaceuticals

Information Technology Services

E-commerce

Relevant Teams

Legal

Human Resources

Finance

Compliance

Corporate Governance

Board Secretariat

Corporate Affairs

Risk Management

Internal Audit

Executive Management

Relevant Roles

Chief Executive Officer

Managing Director

Executive Director

Non-Executive Director

Independent Director

Company Secretary

Chief Financial Officer

Head of Legal

Head of Human Resources

Compliance Officer

Corporate Governance Officer

Board Chairman

Compensation Committee Member

Chief Legal Officer

Director of Finance

Industries
Companies Act, 2013: Primary legislation governing company operations in India, including provisions for director appointments, duties, responsibilities, and remuneration (particularly Sections 197 and 198 dealing with managerial remuneration)
Income Tax Act, 1961: Governs the taxation aspects of profit sharing arrangements, including treatment of director remuneration and profit-linked bonuses as per Section 17
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: For listed companies, these regulations govern disclosure requirements and corporate governance norms related to director compensation
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: Specifies the limits and conditions for managerial remuneration, including profit-related commission
Companies (Meetings of Board and its Powers) Rules, 2014: Governs the process of board approval required for profit sharing arrangements with directors
Indian Contract Act, 1872: Provides the basic framework for contractual agreements and their enforcement in India
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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