We’re in negotiations for an endorsement deal with a well-known athlete, and we’d like to propose a profit sharing agreement. But we’ve heard other people use the term equity share. Before we make the contract, we want to make sure we’re using the correct term. What’s the difference between the two?
The differences between profit sharing and equity sharing can be tricky to understand, but they are in fact entirely different models of investing. If you offer your athlete a profit sharing agreement, you’re allowing your partner a payment based on your brand’s gains. Basically, instead of a salary, you are keeping them on with regular payments that vary based on your profits.
Shared equity, on the other hand, is actually giving your partner a piece of ownership in your company. As a part owner, they will still generate income from your company’s profits. The primary difference this makes is that equity is a more long-term, permanent deal, and profit sharing can be negotiated for a specifically contracted amount of time. You don’t typically negotiate for someone to be an owner-investor for only a certain span of time—though you do have the possibility of buying back the share.
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