Unlike referral fees or revenue-sharing, a true 50/50 profit-sharing arrangement is a collaboration where both parties share ownership and profits on the same terms.
While appealing in theory, this approach is generally only sustainable in a narrow set of circumstances.
Below we explore when 50/50 profit-sharing makes sense and how SMEs in Malaysia can structure a Profit-Sharing Agreement that avoid disputes.
When 50/50 profit-sharing make sense
It works best when both parties contribute equally critical inputs that make the business or project possible, including:
- capital
- expertise
- networks, or
- manpower
To state the obvious, equal doesn’t have to mean the same type of input, as partners can each contribute a different but equally valuable asset.
Some typical scenarios include:
| Scenarios | Why 50/50? |
| A training centre signs a collaboration contract with a co-working space to offer bundled membership + training packages. | Both parties rely equally on each other’s existing customer base and assets to generate sales, so the revenue split is balanced. |
| Two software firms enter into a Partnership Agreement to co-develop a new AI tool. | IP created jointly is usually shared equally. As profits are derived from using or licensing the IP, the profit split reflects the 50/50 ownership. |
| Two brands jointly open a café under a co-investment arrangement, each putting in equal funds. | Both sides take on the same financial and operational risks. Since the exposure is equal, it is fair for the profits to be equally shared. |
What matters is without one party, the project fails, which justifies an equal share of profits.
Key clauses
Disputes happen when terms are vague or when partners have different expectations.
Here are the clauses that matter:
1. Clear definition of “Profit”
Usually, parties define profit as net profit after deducting expenses, but which expenses are deductible, and to what extent?
It’s also crucial to clarify if the profit is from a specific project, product line, or the overall business?
2. Profit Distribution Mechanism
Some businesses prefer quicker distributions to maintain steady returns; others favour less frequent payouts to ease accounting and preserve working capital.
The key is to agree on a schedule that matches the business model and cashflow cycle with:
- distribution frequency
- who prepares and verifies accounts
- payment method and timeline
3. Contributions and Roles
Be specific about what each side is bringing in, and, more importantly, set out ongoing roles and responsibilities. As the project grows, build in a mechanism to review and update these roles so the arrangement stays fair and practical.
The goal is to avoid one side later feeling they do more work and questioning if a 50/50 split is fair.
4. Intellectual Property (IP) Ownership
In collaborations that create new products, equal ownership of IP is common.
However, another option is for one party to hold ownership while granting the other a licence.
Decide upfront if IP will be jointly owned or owned by one party with licence rights for the other, bearing in mind that IP may be far more valuable than immediate profits.
5. Exit & Termination
Always plan so that if one party wants to exit early, the agreement clearly covers:
- a buy-out mechanism
- unfinished projects
- treatment of ongoing revenues or IP created during the collaboration
6. Non-Solicitation & Non-Circumvention
In profit-sharing arrangements, partners often gain access to each other’s internal resources.
Non-solicitation (no poaching of staff or clients) and non-circumvention (no bypassing to deal directly with the other’s contacts) clauses prohibit parties from bypassing the other and behaving unethically.
With these protections in place, parties are also much more open to share resources.
7. Dispute Resolution
Disagreements may arise over profit calculations or distribution timelines. To prevent delays and ensure continuity, the agreement should clearly set out a dispute resolution mechanism.
This may include:
- referring the accounts to an independent auditor for determination
- mediation/discussion as the first step before arbitration or litigation
- a timeline for resolving disputes to avoid indefinite delays in profit distribution
With a structured resolution pathway, parties can address conflicts efficiently without stalling business operations.
5 practical tips for SMEs
If you are considering a 50/50 profit-sharing arrangement, be very clear about the fundamentals:
- Be clear on scope – Decide upfront which business, project, or product the arrangement applies to. Don’t make it open-ended.
- Match expectations early – Talk through what each side is really bringing to the table (skills, networks, funds, or IP) and confirm both see the deal as fair.
- Plan the money flow – Discuss how profits will move: when distributions happen, who tracks the numbers, and how transparency is ensured.
- Think beyond profits – Address ownership of IP, ongoing responsibilities, and what happens if one party leaves.
- Write it down – Even if the partnership starts small, put the essentials into writing to protect trust and avoid misunderstandings.
It’s the same with any contract: Disputes happen due to ill-defined terms or misaligned expectations, so communicate transparently and make sure everything is in writing, and you have done the most to prevent problems down the road.
Let ELP draft your 50/50 Profit-Sharing Agreement
If you are considering a 50/50 profit-sharing arrangement, get in touch today and we would love to help you draft a clear and practical Profit-Sharing Agreement that protects your business and prevent future disputes.
