Description
- A Profit-Share Agreement is a legally binding contract between two or more parties that outlines the terms for sharing profits generated from a joint business venture, partnership, or collaboration. It establishes the responsibilities, contributions, and profit allocation among the involved parties.
GOV Department
- Suruhanjaya Syarikat Malaysia (SSM) / Companies Commission of Malaysia
License Type
- Perjanjian Perkongsian Keuntungan
Details
- Specifies the profit-sharing ratio or percentage for each party.
- Defines the contributions of each party, such as capital, labor, or resources.
- Outlines the accounting methods, timelines, and procedures for profit distribution.
- Includes provisions for managing losses, termination, and dispute resolution.
- Ensures compliance with the Partnership Act 1961 or other relevant laws.
Important Rules
- All parties must agree to and sign the agreement to make it enforceable.
- The agreement must clearly state the profit-sharing formula and the timeline for distribution.
- Any changes to the agreement require mutual consent and documentation.
- Profits and losses must be accounted for transparently and in compliance with applicable tax laws.
- The agreement must include provisions for dispute resolution to address conflicts.
Compound & Punishment
- Failure to formalize a profit-share agreement may lead to:
- Disputes over profit allocation or contributions.
- Legal action or dissolution of the business relationship.
- Breach of the agreement may result in:
- Financial penalties or compensation claims by aggrieved parties.
- Loss of rights to future profits or partnership assets.
- Non-compliance with tax obligations related to profit distribution may result in fines or penalties from regulatory authorities.
Advisor
Jeffrey Eh Hao Yih , Director
Jeffrey has been providing expert guidance for businesses dealing with ongoing challenges. With his expertise, he aids clients in strategic business planning, streamlining operations, and enhancing productivity. Additionally, Jeffrey offers diverse business technology services to help digitize traditional businesses effectively.
Commonly Asked Questions
A Profit-Share Agreement is a legally binding contract that outlines how profits (and sometimes losses) are distributed among parties involved in a joint business venture, partnership, or collaboration.
It ensures clarity and fairness by clearly defining each party’s contributions, profit-sharing ratio, and responsibilities — helping prevent disputes or misunderstandings later on.
Any business partners, investors, or collaborators who share profits from a joint venture or project should have a formal agreement in place to protect their financial interests.
Not exactly. While both can exist together, a Partnership Agreement governs the overall business relationship, whereas a Profit-Share Agreement focuses specifically on how profits are calculated and distributed.
Profit-Share Agreements are generally governed by the Partnership Act 1961, the Contracts Act 1950, and relevant tax laws administered by Lembaga Hasil Dalam Negeri (LHDN).
The agreement should include profit-sharing ratios, contributions of each party, accounting methods, payment timelines, dispute resolution procedures, and rules for loss management or termination.
Yes, but only with the mutual consent of all parties, and any amendments must be documented in writing and signed to remain legally enforceable.
Profits are usually determined after deducting expenses and taxes, using the accounting methods agreed upon in the contract, and then distributed according to the specified ratio.
The offending party may face legal action, financial penalties, or loss of future profit rights as outlined in the agreement or under Malaysian contract law.
While registration with SSM is not required, the agreement should be stamped at Lembaga Hasil Dalam Negeri (LHDN) to be legally enforceable and admissible in court.