A Director Profit Sharing Agreement is utilized when a company wishes to align a director's financial interests with the company's performance and success. This agreement type is commonly implemented in Australian businesses seeking to attract and retain high-caliber directors or when transitioning from fixed to performance-based compensation structures. The document addresses key aspects such as profit calculation methodologies, payment timing, conditions for entitlement, and various safeguards for both parties. It must comply with Australian corporate law, particularly the Corporations Act 2001 (Cth), ASX requirements for listed companies, and relevant taxation legislation. The agreement is particularly valuable for growing companies, professional services firms, and businesses where director performance significantly impacts company success.
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1. Parties: Identifies the company and the director entering into the profit-sharing arrangement
2. Background: Outlines the context of the agreement, including the director's role and the company's desire to implement a profit-sharing arrangement
3. Definitions: Defines key terms used throughout the agreement, particularly technical terms relating to profit calculation and distribution
4. Term and Appointment: Specifies the duration of the profit-sharing arrangement and its relationship to the director's appointment
5. Calculation of Profits: Details the method and basis for calculating the profits that will be shared
6. Profit Share Entitlement: Specifies the director's share of profits and how it will be determined
7. Payment Terms: Sets out when and how profit share payments will be made
8. Conditions and Prerequisites: Outlines any conditions that must be met before profit share becomes payable
9. Tax Treatment: Addresses tax implications and responsibilities regarding the profit share payments
10. Records and Audit Rights: Details the company's obligations regarding financial records and the director's right to audit
11. Confidentiality: Establishes confidentiality obligations regarding the agreement and company information
12. Termination: Specifies circumstances under which the agreement can be terminated and the consequences
13. General Provisions: Standard legal provisions including governing law, notices, and amendment procedures
1. Non-Competition: Restrictions on competing activities - include when the director is not bound by other non-compete agreements
2. Clawback Provisions: Provisions for recovering payments in specific circumstances - include for listed companies or where required by corporate governance policies
3. Good Leaver/Bad Leaver: Different treatment of profit share based on circumstances of departure - include when different exit scenarios need different treatment
4. Dispute Resolution: Specific procedures for resolving disputes - include when standard court jurisdiction is not preferred
5. Insurance: Requirements for insurance coverage - include when the director's role involves significant risk or liability
6. Change of Control: Impact of company ownership changes on the agreement - include for companies likely to undergo structural changes
1. Profit Calculation Methodology: Detailed explanation of how profits are calculated, including any adjustments or exclusions
2. Payment Schedule: Timing and structure of profit share payments, including any minimum or maximum thresholds
3. Performance Metrics: Any specific performance criteria that affect profit share entitlement
4. Pro-rata Calculation Examples: Examples showing how profit share is calculated in various scenarios
5. Approval Matrix: Details of who needs to approve various aspects of profit calculations and payments
6. Tax Treatment Examples: Illustrations of how different types of payments are treated for tax purposes
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