The Director Profit Sharing Agreement is a crucial document for South African companies seeking to align director interests with company performance through profit-based compensation. This agreement becomes necessary when companies want to implement performance-based remuneration structures for their directors, particularly in cases of executive directors or where traditional fixed compensation isn't sufficient to attract or retain key leadership talent. The document must comply with South African corporate law, particularly the Companies Act 71 of 2008, and incorporate governance principles from the King IV Report. It typically includes detailed profit calculation methodologies, payment terms, performance criteria, and tax considerations specific to the South African context. The agreement is particularly relevant for growing companies, listed entities, and organizations with complex director remuneration structures.
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1. Parties: Identification of the company and the director entering into the agreement
2. Background: Context of the agreement, director's role, and purpose of the profit sharing arrangement
3. Definitions and Interpretation: Definitions of key terms including 'Profits', 'Financial Year', 'Profit Share', and interpretation rules
4. Appointment and Term: Confirmation of director's position and duration of the profit sharing arrangement
5. Calculation of Profits: Detailed methodology for calculating the profits subject to sharing
6. Profit Share Entitlement: The director's entitlement percentage and conditions for profit share
7. Payment Terms: Timing, method, and conditions of profit share payments
8. Financial Records and Audit Rights: Company's obligations regarding financial transparency and director's audit rights
9. Tax Provisions: Treatment of tax implications and responsibilities
10. Confidentiality: Obligations regarding confidential information
11. Termination: Circumstances and procedures for terminating the agreement
12. General Provisions: Standard clauses including notices, amendments, governing law, etc.
1. Non-Competition: Restrictions on competing activities - include when director has access to sensitive business information
2. Performance Criteria: Specific performance targets linked to profit share - include when profit share is performance-dependent
3. Clawback Provisions: Terms for recovering paid profit share - include in cases of potential misconduct or financial restatement
4. Good/Bad Leaver Provisions: Different treatment based on circumstances of departure - include for long-term arrangements
5. Dispute Resolution: Specific procedures for resolving disagreements - include when standard court proceedings are not preferred
6. Insurance and Indemnity: Additional protection for director - include when requested by director or high-risk industry
7. Change of Control: Impact of company ownership changes - include for listed companies or those likely to be sold
1. Schedule 1: Profit Calculation Methodology: Detailed formula and accounting principles for profit calculation
2. Schedule 2: Payment Procedures: Specific procedures and timelines for profit share payments
3. Schedule 3: Performance Metrics: Detailed performance criteria and measurement methods if applicable
4. Schedule 4: Excluded Items: List of items excluded from profit calculations
5. Appendix A: Board Resolution: Copy of board resolution approving the profit sharing arrangement
6. Appendix B: Tax Treatment Summary: Summary of applicable tax treatment and calculations
7. Appendix C: Reporting Template: Standard format for regular profit sharing calculations and reports
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