What Is a Finder’s Fee Agreement?
A finder’s fee agreement is a document that lays out the terms between a salesperson ("the finder") and a business for which the finder agrees to do work. The finder’s agreement may be referred to in different names such as a "placement fee agreement" or "business sales commission agreement". A finder’s fee agreement sets forth the terms upon which the finder will be compensated for locating prospective buyers and/or sellers for a particular type of product or service. The finder will remain with the named business for the purpose of finding new clients or customers at all times set forth in the agreement. The name of the business and sales agent should be clearly defined at the beginning of the agreement.
Such an agreement may also be used when a business refers customers or clients located by the salesperson to their prospective sellers or buyers. The salesperson may be referred to as an independent contractor registered as a corporation or sole proprietorship. The finder’s fee agreement can be used to outline issues such as the duration of contract , the scope of their relationship, and what happens to either party can no longer hold up their end of the bargain. The agreement enables the salesperson to effectively begin doing business with the business through referrals of clients to the prospective buyer or seller.
Essential Elements of a Finder’s Fee Agreement
The following elements should be included in an effective finder’s fee agreement:
1. Parties
The agreement should name the parties to the transaction to which the finder’s fee will attach, including a description of the nature of their obligations to one another.
2. The Finder
Parties should affirmatively agree to the finder’s engagement and give their acknowledgement and description of the finder’s rights and responsibilities.
3. The Fee
The manner in which parties will compute payment of the finder’s fee should be unambiguously stated, along with the timing of when the fee becomes due and payable.
4. Exclusivity
The finder may wish or need to protect its exclusive right to a finders fee. An exclusivity clause would prevent a party to the transaction from also paying a commission to more than one finder.
5. Obligations
The finder may desire to enter into an agreement that its efforts are confidential or confidential and exclusive.
6. Limitation
The finder’s ability to assign rights under the agreement, to file liens or assert other claims may be limited by contract.
7. Future Efforts
The finder’s fee agreement may stipulate that the finder shall have a continuing obligation to accompany the deal until it is consummated, excluded or abandoned.
8. Finality
The finder’s fee agreement may include provisions that require good faith efforts to complete a transaction, grant a first right of refusal or contain a "payment as if" clause.
9. Indemnification
An indemnification clause in an finder’s agreement may protect one party from claims by the other or by third parties.
10. Approvals
Depending on the nature of the transaction, the finder’s fee agreement may allow or restrict a party’s use of the finder’s efforts.
Why Use a PDF for Your Finder’s Fee Agreement?
The use of a PDF (portable document format) for the finders fee agreements is beneficial in several respects. The PDF format offers advanced security features that are largely unavailable with other formats like Word or Excel. For example, with Word, anyone with access to the document can copy and paste from it. With a PDF, an addressee is essentially locked out from copying and pasting. Security features, such as password protections, can also be used to offer greater protection.
In addition, PDFs are a highly standardized format that can be read on any internet connected device. The documents do not need to be Word-compatible or they lose track of their formatting, but because most of the world uses Microsoft Word to edit, a Word-compatible format is not reasonable with document delivery. PDFs thus reduce confusion for the review of the document.
Finally, the documents are self-contained and contain all the formatting necessary for printing so there will be no additional time spent trying to actually print the documents, which can be particularly problematic in cases where a wet-ink signature is needed.
How to Create a Finder’s Fee Agreement in PDF Format
When drafting a finder’s fee agreement PDF, begin by identifying the parties who will be signing the document. Include both the name and title of each person within the corporation who will sign. For example, you might have both the President and the Secretary of the company sign the document if you are making it a corporate finder’s fee agreement.
Before you can assign the compensation structure, you must decide what you will be paying the finder. The most common two types of fees offered are a flat finder’s fee and a percentage of the deal. Once you have identified these things, you will need to enter the information into the finder’s fee agreement PDF. The key information that you need to put into the document includes the following: All of this information should be entered clearly into the document so that everyone understands exactly what the document means and what is being agreed to. If you are able to get all parties to sign and agree to the terms, this document can make collecting your finder’s fee much easier.
You should also clearly state any restrictions that might be placed on the finder during the time that you are working with him or her. A finder’s fee agreement PDF that does not include any confidentiality or non-circumvention terms is not worth much at all. Be sure to include those terms in the agreement so that the finder knows exactly what is expected of him or her.
Lastly, include a section at the end of the document where the signatures will be placed. This ensures that everyone knows where to sign to make the contract official. It is important to do everything you can to make the process of hiring your finder’s fee as smooth as possible.
Common Issues with Finder’s Fee Agreements
One of the most common mistakes is the finders fee agreement is to not include conditions under which payment would be due. The estimate of revenues used to determine the fees should be clear and easy to discern. If there is a merger, acquisition, or threat of buyout, the contingency agreement should cover the terms of that transaction.
Another issue to look out for is if the finder has a blanket exclusivity to procure all types of investments into the business. The business may need capital for a variety of things from investors, but they will not necessarily want to give away a large percent of control. The finders fee can be a bit of a challenge if the finder wants a large percent of the business, as this can be a detriment to the business as it tries to grow .
The last major issue that I see involving finders fee agreements is a lack of clarity. In some cases, it appears obvious how the finder will be paid. For instance, if the finder suggests a company to the business, and then facilitates the transaction between the two, it seems clear that he would be owed when the funds are transferred. However, some finders want fees because they merely point out a strong investment opportunity. This, however, borders on being simply a recommendation, one that any friend or business colleague could make.
When it comes to finders fees, it is important that the finder understand exactly what is expected of him. When the contract is agreed upon, it should be clearly laid out what needs to happen in order for them to receive their fees.
Legal Issues and Considerations
When dealing with finder’s fee agreements, it is essential to emphasize due diligence and compliance with local laws. Such agreements can be subject to a wide range of legal and regulatory requirements, ranging from securities laws to anti-corruption rules. As a result, it is crucial that parties involved in finder’s fee transactions ensure that they are both compliant with all relevant laws and regulations, while also being aware of possible exceptions or exemptions. Failing to comply with legal requirements and being misled or incorrectly believing that the transaction is compliant can have serious negative consequences. For example, finders that are unregistered broker-dealers may violate federal and state securities laws by receiving fees. The same outcome can occur if the finder agrees to provide services typical of those of a broker or dealer without complying with legal requirements. In addition, finders are subject to laws regulating compensation arrangements as well as laws governing unlicensed lenders or agents. These penalties can be as severe as criminal fines, and significant monetary penalties can also exist. It is worth noting that securities regulators have imposed civil penalties on companies that have paid fees to unregistered individuals.
Compliance with bribery, money laundering and other types of anti-corruption laws is also important when entering into finder’s fee agreements. These laws often prohibit corrupt payments to foreign officials as well as payments to others to induce them to act contrary to official duties. Regulators have pursued individuals for violations of these laws in connection with finder’s fee agreements, even if the parties are not attempting to conceal their arrangement. Such regulatory enforcement actions have a number of common features, including the existence of clear links between the provision of finder’s fees or other benefits on the one hand and a corrupt intent to obtain an improper favor on the other. In certain cases, the person providing the benefit does not even realize that it is improper. For example, in one case, a large company was fined by a government for paying a foreign official in connection with finder’s fee agreements. The payments were found to have violated local anti-bribery, tax and money laundering laws. Even though the company did not intend to bribe or violate any laws, the enforcement action still occurred.
Requirements can differ between jurisdictions, and therefore parties to a finder’s fee agreement should consult applicable laws to determine whether compliance requirements apply to the transaction.
Finder’s Fee Agreement Examples and Templates
Finder’s fee contracts usually vary per situation and are often customized to meet the parties’ demands. Nonetheless, there are sample agreements readily available on the internet. These can be great starting points for negotiations, from the perspective of both parties.
One such generic template even states that if you were referred into the transaction by a third party, that party also gets the same commission percentage you do. This, of course, depends on the type of business being worked in conjunction with the finder and the nature of the services provided by them. Another generic template containing sections for 10 different signatures and 14 dates on 5 pages (including a specimen check) has far more information than most agreements require. However , it can be an excellent tool to use when writing a larger-format legal document where thoroughness in the context of long paragraphs and sentence structure is required. Other templates may be very short contracts at only one page or as long as 20 pages. The key is to write such agreements at the appropriate length for whatever venture or transaction you are involved in. Any significant omission should be added to a brief but effective addendum to the contract itself.