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Profit and loss clause: Copy, customize, and use instantly

Introduction

A profit and loss clause outlines how the profits and losses generated under the Agreement will be handled. It clarifies the division of financial outcomes, ensuring that both Parties understand their share of any profit or loss. This clause is essential for maintaining transparency and fairness in financial matters related to the contract.

Below are templates for profit and loss clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.

Basic profit and loss clause

This variation covers the division of profits and losses.

The Parties agree that any profits or losses arising from this Agreement will be shared equally between them unless otherwise specified in writing. Each Party’s share of the profit or loss will be calculated at the end of each fiscal year and distributed accordingly.

Profit and loss clause with specified percentage split

This variation specifies the percentage split for profit and loss.

The Parties agree that profits and losses from this Agreement will be shared according to the following percentages: [Party A] will receive [percentage]% of the profit or bear [percentage]% of the loss, and [Party B] will receive [percentage]% or bear [percentage]% of the profit or loss, as applicable. These percentages will be calculated on a quarterly basis.

Profit and loss clause with tax implications

This variation addresses the tax responsibilities for profits and losses.

Any profits or losses generated under this Agreement will be allocated between the Parties in accordance with their respective shares. Each Party is responsible for their own tax liabilities arising from their share of the profit or loss and agrees to consult with a tax professional to ensure proper tax reporting.

This variation allocates profits and losses based on contribution.

The division of profits and losses will be based on the Parties' relative contributions to the project. The Parties agree to assess their contributions in terms of capital, resources, and labor, and the profit or loss will be allocated in proportion to these contributions.

Profit and loss clause with performance-based allocation

This variation allocates profits and losses based on performance.

The Parties agree that profits and losses will be allocated based on the performance of each Party as outlined in this Agreement. The performance metrics will be reviewed quarterly, and profits or losses will be adjusted according to each Party’s achievements in relation to the agreed-upon targets.

Profit and loss clause with fixed minimum guarantee

This variation ensures a fixed minimum share for one Party.

[Party A] will receive a minimum profit share of [specific amount or percentage] regardless of the overall profits of the project. Any profits exceeding this amount will be divided according to the agreed-upon percentage split. In the event of a loss, [Party A] will bear up to [specified amount] of the loss, and the remaining loss will be shared based on the agreed percentage.

Profit and loss clause with quarterly review

This variation includes quarterly reviews of profits and losses.

Profits and losses will be calculated on a quarterly basis, with both Parties agreeing to review the financial performance of the project every three months. At each review, any necessary adjustments to the division of profits or losses will be made, based on the agreed-upon terms.

Profit and loss clause with cap on losses

This variation limits the amount of loss one Party can bear.

[Party A] will be responsible for up to [specific amount or percentage] of the total losses, after which any further losses will be shared equally between the Parties. This cap ensures that [Party A] does not incur more than the specified amount in losses, beyond which the allocation of additional losses will be agreed upon separately.

Profit and loss clause with fixed profit threshold

This variation establishes a fixed profit threshold before profit sharing begins.

The Parties agree that any profits will only be shared after the total profits exceed a threshold of [specified amount]. Once the threshold is reached, the profits will be distributed according to the previously agreed percentages: [Party A] will receive [percentage]% and [Party B] will receive [percentage]%.

Profit and loss clause with net profits definition

This variation defines net profits for the calculation of profit and loss.

For the purposes of this Agreement, "net profits" will be calculated as gross revenue minus direct costs, operating expenses, taxes, and other allowable deductions. The net profit or loss will then be divided as follows: [Party A] will receive [percentage]% and [Party B] will receive [percentage]%, or vice versa in the event of a loss.

Profit and loss clause with loss carry-forward

This variation allows for the carry-forward of losses to future periods.

If a loss occurs under this Agreement, the Parties agree that the loss may be carried forward to the next period. In future periods, any profits will first be used to offset the previous losses before profits are divided according to the agreed percentage split.

Profit and loss clause with joint accountability

This variation holds both Parties jointly accountable for profit and loss.

Both Parties agree to be jointly accountable for any profits or losses arising from this Agreement. Any profit will be equally shared, and any loss will be equally borne, unless otherwise agreed upon by the Parties in writing.

This variation limits the maximum profit a Party can receive.

The Parties agree that [Party A] will receive up to [specified maximum amount or percentage] of the profits. Any additional profits beyond this cap will be shared equally between the Parties. In the event of a loss, [Party A] will bear [percentage]% of the loss, and [Party B] will bear the remaining [percentage]%.

Profit and loss clause with varying shares

This variation adjusts profit and loss sharing based on conditions.

The profit or loss will be shared between the Parties as follows: [Party A] will receive [percentage]% of the profit and bear [percentage]% of the loss. However, if the profits exceed [specified amount], the profit-sharing percentage for [Party A] will increase to [higher percentage]% and for [Party B] decrease to [lower percentage]%. If a loss occurs, the percentages may be adjusted similarly.

Profit and loss clause with contingency-based adjustment

This variation adjusts the profit-sharing based on contingencies.

The Parties agree to adjust the sharing of profits or losses based on the following contingencies: If [specific condition, e.g., a milestone or target] is achieved, [Party A] will receive [percentage]% of the profits. If the condition is not met, [Party B] will receive [percentage]% of the profits instead. This formula also applies in reverse for losses.

Profit and loss clause with pro-rata allocation

This variation allocates profits or losses on a pro-rata basis.

Profits and losses will be allocated between the Parties on a pro-rata basis, in proportion to their initial contributions to the project. Both Parties will agree on their respective contributions, and the final division of profits or losses will be calculated accordingly.

Profit and loss clause with fixed loss contribution

This variation sets a fixed amount for loss contribution.

In the event of a loss, [Party A] will be responsible for up to [specified amount or percentage] of the total loss. Any loss beyond this amount will be shared equally between the Parties or allocated based on a separate agreement, should the loss exceed the fixed contribution.

Profit and loss clause with step-based profit distribution

This variation uses step-based increments for profit distribution.

Profits will be distributed as follows: if the total profit is below [specified amount], [Party A] will receive [percentage]% and [Party B] will receive [percentage]%. If profits exceed [specified amount], the share for [Party A] will increase to [percentage]% and [Party B]'s share will decrease to [percentage]%. The percentages will be adjusted in steps based on the agreed thresholds.

Profit and loss clause with adjustment based on financial performance

This variation adjusts profit and loss sharing based on financial performance.

The Parties agree that profit and loss will be shared based on the financial performance of the project. If the project meets or exceeds the target performance metrics outlined in this Agreement, [Party A] will receive [percentage]% of the profit. If performance is below expectations, [Party A]'s share of the loss will increase by [percentage]%.

Profit and loss clause with shared liability for losses

This variation specifies shared liability for losses.

Any losses incurred under this Agreement will be equally shared between the Parties, irrespective of individual contributions or performance. Each Party will bear [percentage]% of the loss, with both Parties contributing equally toward covering any deficit.

This variation introduces tiered profit-sharing based on performance.

Profits will be shared based on tiered performance. If profits are below [specified threshold], [Party A] will receive [percentage]% of the profit. If profits exceed the threshold, [Party A]'s share will increase to [higher percentage]% until a maximum cap is reached. Beyond the cap, profits will be split equally between the Parties.

Profit and loss clause with bonus for exceeding targets

This variation provides a bonus for exceeding profit targets.

If the total profit exceeds the agreed target of [specified amount], [Party A] will receive a bonus payment of [percentage]% of the exceeding amount. The remaining profits will be split according to the agreed profit-sharing percentages. Losses will be shared equally between the Parties unless otherwise specified.

This variation defers profit sharing until a later period.

The Parties agree to defer the distribution of profits for [specified period] until [Party A] and [Party B] can assess the financial performance for that period. At the end of the deferral period, profits will be shared according to the agreed-upon percentages, and any losses incurred will also be split accordingly.

Profit and loss clause with cumulative loss offset

This variation allows for cumulative loss offset against future profits.

If a loss is incurred under this Agreement, it may be offset by future profits. The losses will be carried forward and deducted from the profits of subsequent periods until the full loss has been offset. The Parties will review the financial statements quarterly to determine how much of the loss has been offset.

Profit and loss clause with fixed split for initial profits

This variation sets a fixed split for initial profits.

The Parties agree that the first [specified amount] of profits generated under this Agreement will be split [fixed percentage]% to [Party A] and [fixed percentage]% to [Party B]. Any profits exceeding this initial amount will be split according to a different agreed-upon percentage division.

Profit and loss clause with independent auditor review

This variation includes an independent auditor to review profits and losses.

The Parties agree that an independent auditor will review the financial statements related to this Agreement at the end of each [specified period]. The auditor’s findings will determine the final allocation of profits and losses, and both Parties agree to abide by the auditor's report.

Profit and loss clause with escalator for higher profits

This variation includes an escalator for higher profits.

As profits exceed [specified threshold], the profit-sharing percentage for [Party A] will increase by [percentage]% for every additional [specified amount] of profit earned. [Party B]'s share will decrease by the same percentage, with this escalator applying to profits exceeding the specified threshold.

Profit and loss clause with early-stage loss allocation

This variation addresses loss allocation during the early stages.

In the early stages of the project, the Parties agree that losses will be shared equally between them until the project achieves a break-even point. Once profits are generated, they will be divided according to the agreed percentage split. If losses exceed the initial amount, the Parties will revisit the allocation method.

Profit and loss clause with cap on maximum loss

This variation caps the maximum loss one Party can incur.

The Parties agree that the maximum loss one Party can incur under this Agreement will be capped at [specified amount or percentage]. Any losses beyond this cap will be the responsibility of the other Party, or handled in a manner both Parties mutually agree upon.

Profit and loss clause with performance-based bonuses

This variation adds bonuses based on performance metrics.

In addition to sharing profits and losses, [Party A] will receive a performance bonus equal to [percentage]% of the profits if specific performance metrics are exceeded. If performance does not meet expectations, the profit sharing will remain as per the agreed percentages, with no bonuses distributed.

This variation allows for an adjustment in the loss-sharing ratio.

If the project incurs a loss exceeding [specified amount], the Parties agree to adjust the loss-sharing ratio. For losses above this threshold, [Party A] will bear [percentage]% and [Party B] will bear [percentage]%, deviating from the initial agreed percentage split.

Profit and loss clause with shared operational costs

This variation specifies shared operational costs in the profit and loss calculation.

Both Parties agree that operational costs, including but not limited to labor, materials, and overheads, will be equally shared before calculating the profit and loss. Any savings in operational costs will be deducted from the losses or added to the profits, and the remaining balance will be distributed accordingly.

Profit and loss clause with withdrawal option for one Party

This variation allows one Party to withdraw from the Agreement.

If either Party wishes to withdraw from the Agreement, they must notify the other Party in writing within [number] days. Upon withdrawal, profits and losses will be divided based on the Party's involvement up until the point of withdrawal, with any future profits or losses excluded from the distribution.

Profit and loss clause with fixed fee for risk-bearing Party

This variation provides a fixed fee for the risk-bearing Party.

[Party A] agrees to assume the risk of [specific risk] in exchange for a fixed fee of [amount]. Any resulting profits or losses from this risk will be fully borne by [Party A], with the remaining profits and losses shared equally between the Parties as outlined in the Agreement.

This variation carries over losses to offset future profits.

Any losses incurred in a given period may be carried over to future periods and offset against profits. The Parties agree that any losses carried forward will reduce the total profits for the subsequent period before the profit-sharing percentages are applied.

Profit and loss clause with joint financial review

This variation includes a joint financial review of profits and losses.

The Parties agree to conduct a joint review of the financial performance every [specified period, e.g., quarter, year]. During this review, the total profits or losses will be assessed, and any necessary adjustments to the division will be made based on the financial performance and market conditions.

This variation escalates the profit share based on performance.

As profits exceed the initial projected amount, [Party A] will receive an escalating percentage of the profit. For every [specified amount] of additional profit, [Party A]'s share will increase by [percentage]%, while [Party B]'s share will decrease by the same percentage.

This variation defers profit sharing until a later date.

Profits generated under this Agreement will be deferred and shared after [specified time, e.g., the end of the first year]. This deferral ensures that all operational expenses are covered first, and the remaining profit will be divided according to the agreed-upon split once the deferred period has passed.

Profit and loss clause with loss cap and profit floor

This variation establishes both a loss cap and a profit floor.

The Parties agree that any losses will be capped at [specified amount], after which the remaining losses will be borne by [Party B]. Any profits will have a minimum floor of [specified amount], ensuring that both Parties receive at least the minimum agreed-upon amount before profit-sharing takes effect.

Profit and loss clause with shared risk and reward

This variation ensures both Parties share the risk and reward equally.

The Parties agree to share both the risks and rewards equally under this Agreement. Any profits generated will be split 50/50, and any losses incurred will also be shared equally between the Parties. This ensures that both Parties bear the same level of responsibility for the financial outcome of the Agreement.

Profit and loss clause with projected loss allocation

This variation allocates projected losses in advance.

The Parties agree to allocate any projected losses at the beginning of the Agreement. These projected losses will be shared according to the following percentages: [Party A] will bear [percentage]% and [Party B] will bear [percentage]%. This pre-allocation will help manage expectations and ensure that both Parties are prepared for any anticipated financial outcomes.

This variation divides losses based on an incremental scale.

Losses incurred under this Agreement will be shared incrementally, depending on the size of the loss. For losses up to [specified amount], they will be shared equally, and for any losses exceeding this amount, [Party A] will bear [percentage]% and [Party B] will bear [percentage]% based on a revised calculation.

Profit and loss clause with annual settlement

This variation settles profits and losses annually.

Profits and losses will be calculated at the end of each fiscal year. Both Parties will conduct a financial settlement based on the annual profit or loss, with any outstanding amounts carried over to the next year or settled immediately at the end of the year.

This variation ensures all profits are shared.

The Parties agree that all profits generated from the Agreement will be allocated as follows: [Party A] will receive [percentage]% of the total profits, and [Party B] will receive [percentage]%. There will be no restrictions on the allocation of profits, and the full amount will be distributed according to the agreed percentages.

Profit and loss clause with retrospective adjustments

This variation allows for retrospective adjustments of the profit and loss share.

At the end of each year, both Parties will review the actual financial performance and make retrospective adjustments to the profit and loss allocation if necessary. If one Party has over or under-received their share based on performance, adjustments will be made to balance the allocation for the next period.

This variation adjusts the profit share based on profit thresholds.

The Parties agree to a sliding scale for profit sharing: if profits are under [specified amount], [Party A] will receive [percentage]% and [Party B] will receive [percentage]%. If profits exceed this amount, [Party A]’s share will increase to [higher percentage]% and [Party B]’s share will decrease to [lower percentage]% based on the new profit threshold.

Profit and loss clause with losses shared in proportion to ownership

This variation ties loss-sharing to ownership percentages.

Any losses incurred under this Agreement will be shared based on the ownership interests of each Party. [Party A] will bear [ownership percentage]% of the loss, and [Party B] will bear [ownership percentage]%, reflecting their respective ownership shares in the project.

This variation ties profit sharing to project milestones.

Profits will be distributed based on the completion of key project milestones. Upon the successful completion of each milestone, the Parties will receive their respective shares of profits. The profit distribution for each milestone will be calculated and agreed upon in advance.

Profit and loss clause with minimum guaranteed return

This variation guarantees a minimum return for one Party.

[Party A] will receive a minimum return of [specified amount or percentage] from the profits generated under this Agreement. Any profits exceeding this guaranteed return will be divided according to the agreed-upon profit-sharing percentages, with the excess being shared equally between the Parties.

Profit and loss clause with loss carryforward and future profit offset

This variation allows losses to be carried forward to offset future profits.

Any losses incurred during the term of this Agreement may be carried forward and offset against future profits. The Parties agree that these losses will be deducted from the profits of the following year until the losses have been fully recovered.

Profit and loss clause with loss allocation cap

This variation caps the amount of loss one Party is responsible for.

The Parties agree that the maximum loss [Party A] will bear is capped at [specified amount or percentage]. If the loss exceeds this amount, [Party B] will bear the additional loss. This cap applies only to direct losses, and any indirect losses will be handled separately.

This variation involves quarterly reviews for profit sharing.

Profits and losses will be reviewed and distributed quarterly. At the end of each quarter, the Parties will calculate the profits or losses, and the distribution will be made based on the agreed-upon percentages, with adjustments if necessary based on quarterly performance.

This variation guarantees a share for early investment.

[Party A] will receive a guaranteed profit share of [specified percentage] from the initial profits due to their early investment in the project. Once this guaranteed share is met, the remaining profits will be split according to the agreed percentages.

This variation allocates losses based on resource contribution.

Losses will be shared based on each Party's contribution to the project. [Party A] and [Party B] will assess the resources (capital, labor, materials, etc.) each Party has contributed, and the share of the loss will be proportional to those contributions.

This variation limits the increase in profit sharing.

In the event that profits exceed [specified amount], [Party A]’s share of the profits will increase to [higher percentage], but no further increases will be allowed beyond [specified cap]. This cap ensures that profit-sharing percentages remain balanced and that further increases are agreed upon by both Parties.

This variation adjusts profit sharing based on risk allocation.

The Parties agree to adjust profit sharing based on the level of risk each Party assumes in the project. [Party A] will receive a higher percentage of the profit if they bear more risk, while [Party B] will receive a larger share of the profit if they assume a lower level of risk. The agreed-upon risk levels and corresponding profit shares will be outlined in a separate schedule.

Profit and loss clause with reverse loss allocation

This variation involves reverse allocation for losses.

In the event of a loss, [Party A] will initially bear [percentage]% of the loss, and [Party B] will bear the remaining [percentage]%. If the total loss exceeds [specified amount], the Parties will reassess and adjust their share of the remaining loss based on their financial capacity and involvement.

Profit and loss clause with fixed monthly allocation

This variation allocates profits or losses monthly.

Profits and losses will be calculated and distributed on a monthly basis. At the end of each month, the Parties will share the profits or losses based on the agreed-upon percentage split, ensuring that monthly financial adjustments are promptly addressed.

Profit and loss clause with no loss bearing clause

This variation specifies that no Party will bear a loss.

The Parties agree that in the event of a loss, no Party will be obligated to bear any portion of the loss beyond their original financial contributions. Any loss exceeding contributions will be handled through additional negotiations between the Parties, with potential third-party involvement.

This variation introduces a sliding scale for loss sharing.

Losses will be shared on a sliding scale based on the amount of loss incurred. If the total loss is under [specified amount], the Parties will share the loss equally. If the loss exceeds this amount, [Party A] will assume a greater percentage of the loss, and [Party B] will bear a smaller percentage.

Profit and loss clause with deferred profit payout

This variation defers profit payouts to a later date.

The Parties agree that any profits generated under this Agreement will not be distributed until [specified date or milestone]. Until this time, the profits will accumulate, and the Parties will share them based on the agreed-upon split once the deferred payout date is reached.

Profit and loss clause with performance bonuses tied to profits

This variation ties bonuses to performance and profits.

[Party A] will receive a performance-based bonus equal to [percentage]% of the profits generated beyond [specified amount]. This bonus will be paid out after the profits are calculated and distributed, with the remaining profits divided according to the agreed-upon percentages.

Profit and loss clause with recovery of previous losses

This variation allows for recovery of previous losses.

Any losses incurred in prior periods will be carried forward and deducted from future profits. Both Parties agree that once the losses from previous periods have been fully recovered, profits will be shared according to the agreed percentage split without further offset.

This variation adjusts the profit-sharing ratio based on proportional contributions.

The profit and loss share will be adjusted based on the proportional contribution of each Party at the time of the calculation. If [Party A] increases their contribution to the project by [specified amount], their share of the profits or losses will be adjusted accordingly.

This variation includes loss-sharing provisions for force majeure events.

If a force majeure event occurs, resulting in a significant loss, the Parties agree to share the loss equally. However, the loss allocation will be adjusted based on the scale and impact of the force majeure event, with both Parties taking appropriate steps to minimize the losses.

Profit and loss clause with escalation for higher profits

This variation includes escalation based on increasing profits.

As profits increase, the share of profits allocated to [Party A] will escalate based on the following tiers: For profits under [specified amount], the share will be [percentage]%. For profits exceeding this threshold, the share allocated to [Party A] will increase to [higher percentage]% and the share allocated to [Party B] will decrease accordingly.

This variation ties profit sharing to equity ownership.

Profits and losses will be shared based on the equity ownership of each Party in the project. [Party A] will receive [percentage]% of the profits and bear [percentage]% of the losses, proportional to their equity share. If either Party’s equity changes, the profit and loss split will be adjusted accordingly.

This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

Last updated 18 Apr 2025