This article is written by Raj Chourasia pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from Lawsikho. 

Introduction

Whenever parties want to sell, purchase or any transactional happen between parties. Every industry has a transactional sale and purchase or transactional routine where parties find some person who can save business owners time to find customers, parties, dealers etc. Then the role of the mediator or middle man comes under the transactional unit. If every industry has transactional behaviour then the role of these middlemen came easily to grow and scale businesses because it saves lots of time for the business owners. A finder’s fee agreement came between one party to a middleman or another party to middlemen. Finder fees are also called referral fees or commission income. For example, when one party have one home and want to give on rent they tell the real estate agent to find customers for my home rent then when the agent refer customers to the landowner and deals was done the agent get some referral fees which all transactional working if we bind this in agreement then it’s known as finder’s fee agreement. Through this article, you can learn and understand more about finders fee agreement. 

What is a finder’s fee agreement?

A finder’s fee agreement is an agreement between the party who refers some leads or customers for transactional business purposes. This means a person who is a middleman refers some clients, leads, customers to another person who wants this client. It is an easy method and employment opportunity as a middle man to work as an intermediary. In this agreement, a middleman or mediator finds or refers some clients to a person who wants some client through this agreement all transactional behaviour can legally bind and comes under the written contract. So that a mediator, a person who arranges business between interested parties, a mediator, middleman such an amount is awarded to the middleman as a referral amount in this agreement all the duration, terms and conditions, limitation, referral amount can also be legally bound in a written contract in this agreement.  

The purpose of the finder’s fee agreement

The whole and sole intention of this agreement are to get interested customers for business through one middleman or mediator who arranges a meeting between the interested person and the person who wants clients. A mediator or middleman can charge some small amount of referral fees as a reward. Most business owners do not have much time to find an interested person who is interested in business. Then for the intention of scaling the business and getting more clients, business owners outsource this work to a mediator or middleman to give some referral amount as a reward and easily get business clients.

Parties in a finder’s fee agreement

In this agreement between the party who wants some clients and the middle man who refers some clients.

Who pays this fee? 

The party who creates this finder free agreement can pay this fee to another party. It all depends upon nature and circumstance in which that middleman can establish the relationship between the interested party and the party who wants clients. The finder fee is paid by either of the parties to the middleman. For instance, a company or a person who creates this finder’s fee agreement can pay this cost to the middleman. 

Important clause of finder’s fee agreement

Every contract has some important clause on which all the terms and conditions and negotiation are dependent. In this agreement, there is an important clause that is most important to understand the finder’s fee agreement and to protect the rights of either party. 

• Parties

The agreement in this clause defines the total parties involved in this agreement or a total number of parties along with the address. 

For example;

Zaru Couture Private Limited is registered under Companies Act, 2003 having its CIN 369258147 and its registered address at B-6, link road Kanpur, India (hereinafter referred to as the “party” which expression shall, unless inconsistent with the context or meaning thereof be deemed to mean and include its subsidiaries, nominees, successors and designs) of the one part; 

AND

Dhruv Digital Private Limited is registered under the Companies Act, 2003 having its CIN 147258369 and its registered address at C-7, Carter Road New Delhi, India (hereinafter referred to as the “middle man” which expression shall, unless inconsistent with the context or meaning thereof, be deemed to mean and include his/her heirs, executors and administrators) of the second part;

• Recitals

Agreement in this clause gives the background information of the parties and background before entering into this agreement. 

For example;

Person A has an iPhone 11 which needs to be sold and Person A does not have any buyers, Person A asks C to find a buyer for his iPhone 11 mobile phone and he shall pay him some reward for his work C finds a buyer for Person A iPhone 11 mobile phone. Here C is an intermediary and he gets his reward which is the finder’s fee. 

Recitals/samples clause

1. Person A is looking for a buyer to sell his iPhone 11 at the price of Rs. 50,000/-.
2. Person A does not have any buyer then Person A approaches and asks person C for his iPhone 11 and as per terms, he agrees to some reward. 
3. C finds a buyer for person A, iPhone 11. 
4. Agreeing to the terms and conditions hereunder both parties have entered into this agreement. 

• Purpose

In the agreement, this clause defines the purpose of the agreement. Which includes; 

• The role of the parties. 
• The purpose of the agreement. 
• Details of the referrer and referee are mentioned hereinafter. 
• The acceptance of the parties. 

Sample Clause

The middle man has agreed to bring potential buyers to a transaction between the seller for the agreed reward amount hereunder this agreement to sell his _______ to ____ (referee).

• Obligations of parties

Agreement in this clause defines the obligation of both the parties which have to perform or legally bind to perform. 

• Duration of this agreement

The agreement in this clause clearly defines the duration of this agreement. 

• Finder’s fee

The agreement in this clause clearly defines how much the finder’s fee will be rewarded to the middle man or intimidator. 

• Payment method

The agreement in this clause clearly defines the method and way of the payment paid to the middle man or intimidator. 

• Confidentiality

As known that confidentiality is the most important part of the contract to prevent a party from disclosing hidden secrets to anyone in this clause defines the confidentiality terms. 

• Termination

The agreement in this clause clearly defines the termination. 

• Representation and warranties

The agreement in this clause clearly defines the representation and warranties of parties between each other. 

• Governing law and jurisdiction 

This clause defines the jurisdiction and governing law if disputes happen between the parties then this clause clearly defines the jurisdiction and governing law. 

• Dispute resolution

In this clause, we have to define the proper way to solve the dispute like we have to choose to solve the dispute either through arbitration or another way as defined in this clause. 

An example of this clause:

1. In the event of any dispute, disagreement or difference arising out of or in connection with this agreement, including any question regarding its performance, existence, interpretation, validity, termination and the rights and liabilities of the parties (dispute), the parties shall in the first instance endeavour to amicably settle the same through negotiations carried out in good faith. 
2. To conduct such negotiations, each party shall designate in writing to the other party, a representative who shall be authorised to negotiate on its behalf to resolve any dispute (the representative). Each such representative shall remain so authorised until his replacement has been notified in writing to the other party, by the party he represents. 
3. The representative of the party which considers that a dispute has arisen shall give to the representative of the other party, a written notice setting out the material particulars of the dispute (dispute notice). Within 30 (thirty) days or such longer period, as may be mutually agreed by the parties, of the dispute notice having been delivered to the other party, the representatives of both parties shall meet in person to attempt in good faith and using their best endeavours at all times, to resolve the dispute. Once the dispute is resolved, the terms of the settlement shall be recorded in writing and signed by the representatives of the parties.
4. If the representatives of the parties fail to resolve or settle the dispute within 90 (ninety) days of their meeting, the dispute shall be decided by arbitration in accordance with the procedural rules Arbitration and Conciliation Act, 1996. The arbitration proceeding shall be conducted in Mumbai. The cost and expenses of the arbitrators shall be shared equally by the parties. There may be 3 arbitrators appointed out of which 2 may be appointed by each party and those 2 arbitrators will appoint a third arbitrator. The fee of the arbitrators will be capped at INR ______. The language of the arbitration will be English. 

• Arbitration 

Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Access or Justice Institute, and the and the award made in pursuance thereof shall be binding on the parties. 

The parties agree that the arbitration proceedings shall be conducted by way of submission of written pleadings, documents, and submissions made by the parties without any oral hearing. 

The parties agree that the written pleadings will be submitted to the arbitrator appointed by the said Institute who will resolve the dispute and differences hereunder by fast-track procedure. 

The arbitrator shall decide in a time-bound manner after considering only such written arguments. The decision or award so given by the arbitrator shall be binding on the parties hereto. In case, one of the parties does not take part in the arbitration proceedings and/or obstruct the arbitration proceedings, the arbitrator shall pass an ex-parte order which would be enforceable on both parties.

• Assignability

In this clause, we have to define the assignability as per this agreement. 

An example of this clause:

This agreement and the rights and obligations hereunder are personal with respect to the employee and may not be assigned by any act without the prior written consent of the company. The company shall, however, have the absolute, unfettered right to assign this agreement to a successor in interest to the company or the purchaser of any of the assets of the company. 

• Waiver

In this clause, we have to define the waiver clause as per this agreement. 

An example of this clause:

Of the same as other provisions of this agreement. No waiver by either party of any default shall be deemed as a waiver of prior or subsequent default

• Severability

In this clause, we have to define the severability clause as per this agreement. 

An example of this clause:

If any term, clause or provision hereof is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other term, clause or provision and such invalid term, clause or provision shall be deemed to be severed from the agreement.

Conclusion

When one party is looking to sell and get more clients or customers for scaling their business or any other reason. The biggest challenges face every entrepreneur face this challenges in today era of business to finding a potential customer that this came end if enter into this finder’s fee agreement. Through entering into this agreement and executing the finder’s fee agreement can save lots of time and money for the business owner to get potential clients. If every industry has transactional behaviour then the role of these middlemen comes easily to grow and scale businesses because it saves lots of time for the business owners. A finder’s fee agreement came between one party to the middleman or another party to middlemen. Finder fees are also called referral fees or commission income.

References

• https://blog.ipleaders.in/finders-fee-benefits-important-clauses/

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