A business agreement is a contract between two or more parties where at least one of the parties is a company. One type of business agreement is a finder’s agreement.

What Is a Finder’s Agreement?

A finder’s agreement is a business contract between a company and a finder, who may be an individual or another company.  The specifics of the agreement depend on a company’s needs. The goal for the company is to focus on other aspects of the company while a finder does the work needed to grow the business.

Why Would I Want to Hire a Finder?

A company typically hires a finder to identify business opportunities such as:

  • Acquiring additional financing
  • Locating strategic partners
  • Finding acquirers
  • Identifying customers

How Much Do I Pay a Finder?

A finder is paid according to the specifics of the contract and:

  • How difficult it is to close each transaction
  • The expected value of the transaction
  • How unique the finder’s services are

Can I Choose the Pay Structure in a Finder’s Agreement?

The pay structure for a finder is often negotiated between the company and the finder, and then written out in detail in the finder’s agreement contract. Common pay structures in a finder’s agreement include:

  • A percentage of any gross proceeds
  • A set dollar amount paid at a specific time
  • Equity compensation, which can vary from partial ownership in the company to merely receiving the benefits of phantom ownership
  • A combination of the aforementioned forms of compensation

What Is Phantom Ownership?

Phantom ownership is a term that refers to the finder receiving the financial privileges of being a partial owner of the company. However, the finder does not have any real power to make decisions with regard to the company or vote on the company board.

Will I Have to Cover the Finder’s Expenses?

A company is not automatically required by law to reimburse the finder for any of the finder’s expenses. Any reimbursement for a finder’s expenses must be determined while negotiating the contract.

Do I Need Help Negotiating a Finder’s Agreement?

Negotiating any business contract is an incredibly important task. This is especially true with a contract as crucial to the company as an agreement with a finder. You should speak to a contract lawyer about negotiating a finder’s agreement. There are implications for both parties, including tax consequences, securities rules, and termination laws.