Finder's Fee

Finder's fees refer to a commission given to anyone who helps facilitate a business meet its customers instead of one-time monetary compensation. This fee compensates an individual or entity for facilitating a business transaction by connecting a buyer with a seller or vice versa.

The Finder's fees typically connect to a sale transaction between two parties. Furthermore, the seller or buyer may charge the fees as either a fixed amount or a percentage of the deal's value. Therefore, this process facilitates a deal between two parties, allowing them to meet and conduct business.

Key Takeaways                                                               

• A finder's fee is a commission or payment given to an individual or entity that successfully introduces a buyer or a seller to a business transaction.
• It allows businesses or individuals to connect to customers who would otherwise not know of the product or service and may never have bought these, adding a new source of revenue to the seller.
• Referral, finder's fee, and commission differ because referral does not include a written agreement, finder's fee has an agreement specified by the government, and commission is based on a contract between the agent and the business.

A finder's fee is a compensation paid to an individual or entity for successfully connecting two parties involved in a business transaction. Hence, it enables the seller or a buyer to connect quickly and gain for each other in place of a small fee to the finder. 

Individuals and large firms also get finder's fee by referring customers to large firms. Some even have modeled their business on the referral business to earn substantial referral fees. 

Furthermore, finder's fee businesses can operate in various sectors, including real estate, business brokerage, consulting, and more. Besides, the success of such a business often relies on the finder's ability to match parties effectively and the trust established within the network. However, the finder's fee amount is not fixed and can vary based on several factors. Parties negotiate the finder's fee, and there is no standard or universal percentage or amount for it.

Here's a breakdown of how a finder's fee works:

• The finder identifies an opportunity where two parties could benefit from engaging in a business transaction.
• Then, the finder facilitates the initial contact between the parties. Hence, this might involve introducing information between the buyer and the seller.
• If the introduced parties finalize a transaction, the finder is entitled to receive a finder's fee as compensation for actively bringing the parties together.
• Before making any introductions, the parties typically execute a formal agreement or contract that outlines the terms of the finder's fee.
• After completing the transaction, individuals make payments. Thus, the payment could be a fixed amount, a percentage of the transaction value, or another agreed-upon arrangement.
• Hence, parties typically document the terms of the finder's fee arrangement in writing to avoid misunderstandings.

Let us check the example below to understand its concept.

Example #1

Let's imagine Baker Tilly Digital  Corporation, a technology firm, entering into a finder's fee agreement with Jane Doe, an independent business consultant. Jane actively identifies and introduces potential clients interested in this Corporation's software solutions in this arrangement. Consequently, the Corporation pays her a finder's fee, set at 5% of the gross revenue generated from any contracts resulting from her referrals, within 30 days of closing each transaction.

Moreover, the agreement stipulates that Jane must maintain the confidentiality of all proprietary information the Corporation shares. Besides, the agreement term is one year, with either party having the right to terminate with 30 days' notice. Both parties agree that the laws of the state shall govern the agreement. Therefore, this arrangement ensures compensation for Jane's efforts in facilitating valuable business connections for the technology corporation while safeguarding the confidentiality of sensitive business information.

Example #2

On September 23, 2033, Tevano Systems Holdings Inc., a technology company focused on sustainable energy solutions, and ZAAP Charge Inc. ("ZAAP Charge") announced that they have signed a Letter of Intent (LOI) to explore a potential strategic alliance to transform the electric vehicle (EV) charging market. Therefore, in partnership with installation partners, ZAAP Charge Inc. is famous for its fast-charging solutions that increase effectiveness and dependability.

According to the LOI, Tevano Systems will acquire 100% of ZAAP Charge in an arm's length transaction for 37.5 million common shares with a presumed value of 0.5 cents per share. The finders participating in the transaction will also receive a finder's fee of 3.75 million shares at arm's length and a presumed value of 0.5 cents per share. Tevano Systems will also provide ZAAP Charge one a seat on the board of directors (BOD) and $100,000 in working capital to cover audit costs and expedite the introduction of the M2 machine to Canada, allowing for quick revenue generation.

Usually, a business establishes a written agreement with the finder concerning compensation, terms, and conditions in the event of a referral of a potential client. A written agreement keeps payout transparency and eliminates any future misunderstanding or lawsuit. Hence, the government of the US has prepared a format for these fees. Therefore, let us have a look at the template of finder’s fee contract below:

Dear ,

This Finder's Fee Agreement (the "Agreement") is made and entered into as of (the "Effective Date") by and between , a corporation, with its principal place of business at (the "Finder"), and , a corporation, with its principal place of business at (the "Client").

1. Engagement of Finder: The Client engages the Finder to .
2. Compensation: Considering the services provided by the Finder, the Client agrees to pay the Finder a finder's fee of of any revenue generated from transactions with clients introduced by the Finder. Payment will be made within days of the close of each transaction.
3. Duration of Agreement: This Agreement will commence on the Effective Date and will remain in effect until terminated by either party with days' written notice.
4. Confidentiality: The Finder agrees to keep confidential any proprietary or sensitive information the Client provides.
5. Independent Contractor Status: The Finder is an independent contractor and is not an employee, partner, or agent of the Client.
6. Governing Law: This Agreement shall be governed by and construed by the laws of the State of .
7. Amendments: This Agreement may be amended only in writing and signed by both parties.

IN WITNESS WHEREOF, the parties hereto have executed this Finder's Fee Agreement as of the Effective Date first above written.

By: ________________________ By: ________________________

Date: ________________________ Date: ________________________

Here are the main differences between the three: