Finder’s fee: Overview, definition and example
What is a finder’s fee?
A finder’s fee is a payment made to someone who helps another party find or introduce a business opportunity, such as a potential client, partner, or investor. It’s typically a percentage of the transaction value or a fixed amount that compensates the individual for connecting the parties. This fee is often paid when a deal is successfully closed due to their introduction or referral.
Why is a finder’s fee important?
A finder’s fee is important because it incentivizes individuals to use their network and resources to bring in valuable opportunities. It encourages the introduction of potential clients, business partners, or investors, which can drive business growth. For the party receiving the introduction, it can save time and effort in finding the right connections.
In business agreements, it’s crucial to clearly define the conditions for paying a finder’s fee, to ensure fairness and transparency.
Understanding "finder’s fee" through an example
Imagine a startup looking for investors. A business consultant introduces the startup to an investor, and as a result, the investor agrees to invest $1 million in the business. The consultant is paid a finder’s fee of 5% of the total investment, which amounts to $50,000.
In another example, a real estate agent introduces a buyer to a seller of a commercial property. Once the property is sold, the agent receives a finder’s fee of $10,000 for facilitating the sale.
Example of a finder’s fee clause
"The Company agrees to pay the Finder a fee equal to 5% of the total value of the transaction, payable within 30 days following the successful completion of the transaction."
Conclusion
A finder’s fee is a financial incentive paid to someone for connecting parties and facilitating business opportunities. It’s a common practice in various industries, including real estate, investments, and sales. By understanding how finder’s fees work, businesses can effectively manage relationships and incentivize key players in bringing valuable opportunities.
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.