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Making a Finder's Fee Agreement
Sometimes valuable business information, potential clients, and contacts come from an outside source. A Finder's Fee Agreement outlines the relationship and the compensation to be expected in a relationship where an incentive is being offered in exchange for new leads or clients. Documenting your arrangement on paper helps ensure that the interests of both parties are laid out in certain terms. A Finder's Fee Agreement can also help in the face of future disagreement, preventing any alleged uncertainty.
Who pays the finder's fee will depend on the kind of business and the prior arrangement. For example, in some cases the finder's fee is paid by the buyer in a transaction. In other situations, the finder's fee is paid for by the seller. Additionally, in some cases, the finder's fee is treated more like a commission than a gift.
You can use this Finder's Fee Agreement template if:
In order to get a finder's fee, you'll need to find a business or organization that is willing to pay one. Common scenarios for finder's fees include:
Depending on the kind of arrangement, you could be paid either a percentage of a signed deal, or a predetermined amount. For example, $50 for each referral. In some cases, you may not be paid unless your referrals actually sign a contract with the business.
Whether a Finder’s Fee Agreement is legally binding depends on several factors. First, the Finder’s Fee Agreement must comply with state and federal laws that govern when a finder's fee may be paid. These laws vary from state to state and there are federal laws that also must be navigated.
Second, a Finder’s Fee Agreement is a contract and therefore has to meet the elements of a contract, which are: (i) subject (which includes the offer and acceptance); (ii) consideration; and (iii) capacity, meaning that each party must generally be competent and authorized to enter into the contract. In general, a party is competent to enter into a contract if they are 18 years of age or older and are not severely mentally disabled. If these elements are not met, the Finder’s Fee Agreement may not be legally enforceable. The Rocket Lawyer Finder’s Fee Agreement is a good start towards helping you create an agreement that meets the required elements.
Ask a lawyer for state and situation-specific guidance regarding your Finder’s Fee Agreement.
Ideally, the timing of a finder’s fee payment is governed by the terms of the Finder’s Fee Agreement and should be included in the written terms of the agreement. Often, the fee is made payable when the business transaction with the identified lead occurs. In other arrangements, a party is paid by the referral, regardless of whether the referral leads to a business transaction. The parties are free to determine the time of payment that best suits them, but might consider putting their agreement in writing to avoid uncertainty and misunderstandings, which can lead to disagreements.
The IRS has pretty consistently found that finder's fees are not tax deductible.
In many cases, the finder's fee may be considered like a gift from one party to another, as no legal obligation to pay a commission exists. However, businesses that offer finder or referral fees must carefully navigate laws that govern who can receive a fee and under what circumstances. Certain professions, for example, cannot give or receive gifts from certain kinds of entities. Lawyers, for example, may not "profit share" with non lawyers. Laws regarding gifts and referral fees vary from state to state, and federal laws can be unclear under certain circumstances or within certain professions. Ask a lawyer for more guidance in regard to your specific situation.