A Finder's Fee Agreement is a formal document that outlines the relationship between a business and an external party, known as a finder, who facilitates a transaction. The agreement details the compensation the finder will receive for introducing a new business partner, customer, or other opportunity. This financial incentive motivates the finder to actively search for and refer new business prospects to the client. The agreement is a written contract that clarifies the terms of the arrangement, ensuring both parties understand their obligations and the conditions for payment.
The use of a Finder's Fee Agreement is recommended in several common business scenarios. These include when a company is seeking potential investors and is connected to them through a common business partner, when a business wishes to sell assets and is referred to a prospective buyer by an acquaintance, or when a company needs to hire a new employee for a specific project and receives a recommendation from a former or current employee. In all these cases, the agreement serves to document the referral relationship and the associated financial terms.
It is highly advisable to complete a written agreement whenever seeking referrals, even if the company and the finder have a long-standing working relationship and are willing to provide or accept a favour. Reflecting the business relationship in written form provides clarity and protection for both parties. The agreement typically specifies the names of the parties involved, the purpose of the contract, the type of referral being sought, the term of the agreement, and the details of the finder's fee.
The finder's fee is a key component of the agreement. While the percentage can be negotiated, it is often calculated on a pro-rata basis and may be around 10% of the eventual transaction consideration. The payment conditions, such as the method of payment, must also be specified. Under special circumstances, a finder may waive their right to compensation, but traditionally, a fee is the standard way to reward someone for introducing new business opportunities.
Other important clauses within a Finder's Fee Agreement often include an exclusivity clause, which is generally non-exclusive, allowing both parties to enter into similar contracts with others; a confidentiality clause to protect shared industry knowledge and trade secrets; and a termination clause outlining how the agreement can be ended. The agreement may also require the finder to represent that a relationship exists between them and the company’s principal owners or managers and that they will facilitate a specific introduction.
For instance, a sample agreement might be between a private equity fund manager and a firm, where the finder facilitates an introduction to a specific entity. The agreement could stipulate that if the representative introduces the client to a partnership, funding, or other transaction within a defined period, such as 36 months, the client will pay a fee as outlined in an exhibit. Confidentiality of shared information is also a standard specification.
To create a Finder's Fee Agreement, one can use a template or an online form builder. The process involves stating the names of the customer and finder, describing the purpose of the contract, outlining the term, negotiating the fee and payment conditions, and including necessary clauses. The final document should be signed by both parties, often in duplicate. It is also recommended to attach an exhibit listing existing contacts for which the finder will not receive a fee. Keeping copies of all documents is essential for records and future reference.