A restaurant in Lajpat Nagar lets a cloud-kitchen brand cook from its kitchen for 18% of sales. Six months later the two cannot agree whether “sales” means the menu price, the amount the delivery app paid out, or that amount after refunds. A software developer builds an app for a coaching institute in return for 30% of subscription income and discovers that the institute now sells the same course bundled with offline classes, at one price, with no split. Revenue sharing is one of the simplest ways for two businesses to work together without either paying a large fixed fee. It is also one of the easiest to get wrong, because almost every dispute is about a definition nobody wrote down. This page explains how to write it down.
In a revenue sharing arrangement, one party earns money from customers and pays another party a percentage of it. The other party has contributed something that helped earn that money: a location, a brand, a product, technology, content, an audience, or introductions. Instead of charging a fixed fee for that contribution, it takes a share of what the contribution produces.
The attraction is that both sides’ incentives move in the same direction. The contributor is paid more when the business does well and less when it does not, which lowers the cost of starting for the party that runs the business and gives the contributor a reason to keep helping. A landlord who takes a share of a restaurant’s sales wants the restaurant to be busy; a developer who takes a share of app subscriptions wants the app to keep working.
The difficulty is that the parties are measuring the same thing from opposite ends. The party paying the share wants the revenue figure to be as low as it can honestly be; the party receiving it wants it as high. Every word of the definition therefore has a price, and a clause that seems obvious on the day of signing — “18% of sales” — turns out to contain half a dozen questions nobody answered.
A revenue sharing agreement is the document that answers them in advance. It can be a standalone contract, or a revenue sharing schedule inside a larger agreement such as a lease, a licence, a distribution agreement or a joint venture.
Revenue sharing appears in almost every kind of business in India, often without being called that. Common examples:
Each of these has its own practical questions, but the drafting problems are the same: what revenue counts, how it is measured, how the other side can check it, and how the money reaches the person entitled to it.
Before drafting a revenue share, it is worth checking that it is the right structure. The alternatives each solve a different problem.
| Structure | Calculated on | Best when | Main risk |
|---|---|---|---|
| Fixed fee | Nothing variable | The contribution has a clear market price | Paying party carries all business risk |
| Revenue share | Income before most costs | One party contributes but does not control costs | Arguments about what counts as revenue |
| Profit share | Income after costs | Both parties run the business together | Arguments about which costs are deducted |
| Commission | Sales the agent brings in | An intermediary finds customers for a principal | When commission is earned or lost |
| Hybrid | A fixed amount plus a percentage | Both certainty and upside matter | Complexity |
Profit sharing sounds fairer, because it rewards the business only when it actually makes money. In practice it is much harder to police. The party controlling the business also controls salaries, rent, marketing spend and the allocation of shared overheads, and every one of those reduces the profit on which the other party’s share is calculated. That is why a party who contributes without managing usually asks for a share of revenue, which is closer to the till.
Commission is a close cousin. An agent who finds customers for a principal is usually paid a percentage of the sales he or she generates, and the law of agency governs when that commission is earned; our agency agreement guide explains the commission timing rules. A revenue share is broader: the contributor may never touch a customer at all.
This is the question clients ask most often, and for good reason. Partners in a firm are jointly and severally liable for its debts. If a revenue sharing arrangement were treated as a partnership, each party could be liable for the other’s business obligations.
The Partnership Act answers it in two steps. The definition of partnership requires an agreement to share the profits of a business carried on by all or any of the parties acting for all; our joint venture guide sets out that definition and how arrangements slip into it. Section 6 then tells courts to look at the real relation between the parties, as shown by all the relevant facts taken together, and adds explanations: sharing gross returns from property held in common does not of itself make people partners, and receiving a share of profits, or a payment that varies with profits, does not of itself make a person a partner — for example, when it is received by a lender, by an employee or agent as remuneration, or by the seller of a business’s goodwill.
A revenue share between two independent businesses, each running its own affairs, each acting for itself and neither acting for the other, is therefore usually not a partnership. But the facts can change the answer. Signs that point towards a partnership include:
The agreement should say expressly that the parties are independent contractors, that neither is the agent or partner of the other, that neither may bind the other, and that each bears its own costs and liabilities. That declaration helps, but only if the parties actually behave that way. If a partnership is what you really intend, a partnership deed is the right document.
Some businesses cannot share their fees freely, and a revenue sharing agreement that ignores those rules can be unenforceable or worse.
Where the rules of a profession or sector apply, the agreement should be structured around them — for example, as a fee for a defined service at a fixed rate rather than a percentage of professional income — and each party should confirm its own regulatory position.
The definition of revenue is the most valuable clause in the agreement. A one-percentage-point argument about the rate is worth far less than an argument about whether a category of income is included at all.
We draft the definition in three layers:
“Closed list” is the key idea. If the agreement says revenue is gross sales “less applicable deductions”, every future cost becomes an argument. If it lists the deductions and says nothing else may be deducted, the arithmetic becomes mechanical.
Franchise agreements face exactly this problem with royalties, and our franchise guide works through the common choices on defining gross sales, including sales through delivery platforms. The same thinking applies to any revenue share.
The schedule should say, for each possible deduction, whether it is allowed and on what evidence. A typical schedule covers:
| Item | Usual treatment | Point to settle |
|---|---|---|
| GST and other indirect taxes | Always excluded | State that revenue is net of tax collected |
| Refunds and returns | Deducted in the period they occur | What if a refund relates to an earlier period already paid? |
| Chargebacks and payment reversals | Deducted when confirmed | Evidence from the payment gateway |
| Discounts and coupons | Deducted if shown on the invoice | Who funds the discount, and is it capped? |
| Platform or marketplace commission | Negotiated | Deducting it shifts platform cost to the recipient |
| Payment gateway charges | Often deducted | Actual charges, not a notional percentage |
| Bad debts | Deducted only if revenue is on billed basis | When is a debt treated as bad? |
| Delivery charges collected | Excluded if passed to a delivery partner | Is any margin kept? |
| Complimentary or staff sales | Excluded, within a limit | A cap stops misuse |
Two principles help. First, a deduction should be allowed only if it reflects money that the paying party did not actually keep — tax passed to the government, a refund returned to a customer, a commission retained by a platform. Deductions for the paying party’s own costs of running the business, such as salaries, rent or marketing, turn a revenue share into a profit share by the back door. Second, each deduction should be supported by a document the recipient can see: a tax return, a gateway report, a credit note.
The same sale can be counted at three different moments: when the invoice is raised, when the money is received, or when the service is actually delivered. The choice matters most where there is a gap between them.
Whichever basis is chosen, the agreement needs a true-up rule: when a refund, chargeback or cancellation relates to revenue already shared in an earlier period, the share previously paid is deducted from the next payment, and if the agreement has ended, it is repaid within a set time. Without that rule, the paying party has to sue to recover it.
Revenue leaks out of a sharing arrangement in predictable ways. The agreement should close each one.
Bundling. If the shared product is sold together with something that is not shared, at one price, how much of the price belongs to the shared part? The agreement should require the paying party to allocate bundled prices in proportion to the standalone prices of each element, or by a fixed formula, and should prohibit bundles that reduce the shared element’s share below an agreed floor.
Related parties. Sales to a company or person connected with the paying party, at a discount, reduce revenue without reducing value. The usual answer is that such sales are counted at the normal price charged to independent customers.
Channel shifting. If revenue is shared only on one channel, such as an app or a particular premises, the paying party may move customers to another channel. Where that risk is real, the definition should cover the business however the sale is made, or the agreement should contain a non-diversion clause.
Barter and credits. Where the paying party is paid in kind, by advertising, credits or services, the market value of the consideration should be included.
Price changes. A deep, permanent discount may be good business for the paying party and bad business for the recipient. Some agreements require consultation, or the recipient’s consent, for discounts above a limit or for free offers lasting more than a set period.
There is no standard revenue share. The right figure depends on what each party contributes, who bears which costs, and what the alternative would cost. The structures used in practice include:
The simplest way to test a structure is to model it. Before signing, both parties should calculate the share at three levels of revenue — disappointing, expected and excellent — and ask whether the result is acceptable in each case. A structure that looks fair at the expected level can be unworkable at either extreme.
A pure percentage puts the whole risk of poor performance on the recipient. If the recipient has given something valuable in return — exclusivity, a prime location, a content library that it cannot license to anyone else — it will want some protection.
Minimum guarantee. The paying party guarantees a minimum amount for each period. If the percentage share is higher, that is paid; if it is lower, the minimum is paid. The agreement should say whether a shortfall in one period can be made up by an excess in another, and whether the minimum is suspended if the business is prevented from operating by events beyond the parties’ control.
Advance. The paying party pays a sum up front, which is then recovered from future shares until it is repaid. The agreement should say whether an unrecovered advance is refundable if the agreement ends early, and in which circumstances.
Cap. Sometimes the paying party asks for a ceiling on the share for a period, or on the total paid over the term. A cap suits arrangements where the contribution has a known value that the parties do not want to exceed, such as a developer’s build cost plus an agreed return.
Performance triggers. Where the recipient depends on the paying party’s efforts, the agreement can require minimum efforts — marketing spend, opening hours, stock levels — and give the recipient a right to end the arrangement if revenue stays below an agreed level for a set number of periods.
The recipient of a revenue share cannot see the till. Everything it knows about the revenue comes from what the paying party reports. The reporting clause is therefore the recipient’s main protection.
A good clause specifies:
Where the data includes information about individual customers, the paying party may not be able to share it freely under data protection law. Aggregated figures are usually enough for checking a revenue share; if personal data must be shared, the agreement should say why and how it will be protected, as our data protection guide explains in the section on processors.
Statements are only as reliable as the books behind them. An audit clause lets the recipient check.
The agreement should also require the paying party to keep the relevant records for at least the look-back period. Businesses are in any case required to keep records for long periods: companies must preserve their books of account for eight financial years, and GST law requires records to be retained for a number of years after the annual return. A contractual duty to keep them available for the other party is still worth stating, because statutory duties are owed to the government, not to a business partner.
How the money flows is as important as how much. There are three common models.
The paying party collects and pays out. The usual model. The paying party receives all customer money, and pays the share after each statement. The recipient carries credit risk on the paying party, so the payment date, late-payment interest and a right to suspend or terminate for non-payment all matter.
Split settlement. Many payment gateways and marketplaces can split a customer payment at the point of settlement, sending each party its share directly. This removes credit risk and most reporting disputes, but requires both parties to be onboarded with the same gateway and the split rules to match the agreement. Refunds and chargebacks must also be split, and the agreement should say how.
Escrow or collection account. For larger arrangements, such as land development or project-based revenue, customer money is paid into a designated account from which payments are made in an agreed order. The account mandate should reflect the agreement exactly.
In every model, the agreement should deal with set-off — whether the paying party can deduct amounts the recipient owes it, such as charges for services, from the revenue share. A clear list of what can be set off prevents one-sided deductions.
Where the recipient is a micro or small enterprise registered under the MSMED Act and the share is payment for goods or services it supplied, the statutory period for payment and interest for delay may apply; our freelance agreement guide explains the forty-five day rule and the interest it carries.
A revenue share is usually a payment for something — a service, a licence, the use of premises or intellectual property, or goods. Tax follows that underlying character, not the label. This page does not give tax advice; the questions below are the ones to take to your chartered accountant before signing.
Two drafting rules help regardless of the answers. First, the revenue base should be stated net of GST collected from customers. Second, the share itself should be stated as exclusive of GST, with GST payable on top where applicable, so that the parties do not later argue about whether the percentage includes tax.
A recipient who takes its reward as a share of revenue is exposed if the paying party starts earning the same revenue elsewhere without sharing it. A paying party who has invested in building a product around the recipient’s contribution is exposed if the recipient offers the same thing to a competitor. Exclusivity clauses address both risks.
Exclusivity during the agreement — for a defined product, territory or channel — is generally enforceable, because courts have treated restraints that operate during a contract differently from those that bite after it ends; our NDA guide explains the distinction in the section on restrictions during a relationship. A restriction that stops a party competing after the agreement ends runs into section 27 of the Contract Act and will usually fail. Confidentiality and non-solicitation of customers introduced under the agreement are the safer post-termination protections.
If exclusivity is given, a minimum guarantee or performance target is usually its price. An exclusive arrangement with no minimum lets the paying party lock the recipient in while doing very little.
Revenue sharing arrangements often involve customers who deal with one party but were brought in by the other. The agreement should say:
These questions sound secondary but often decide what each party is left with at the end. A recipient who has shared revenue for three years and owns no customer relationship walks away with nothing but past payments.
The term should match the time it takes for each party’s investment to pay off. A developer who built an app for a share of subscriptions needs enough time to recover the build cost; a landlord who gave a fit-out period needs time for the turnover rent to compensate it.
The agreement should cover:
If the agreement contains a lock-in, it should also say what happens if a party leaves during it — for example, payment of the minimum guarantee for the remaining lock-in months. Indian courts will generally award compensation for loss actually caused by the breach, not a penalty; a genuine pre-estimate of loss, explained in the agreement, is more likely to be upheld than an arbitrary sum.
A tail clause keeps revenue sharing going, for a limited time, on business that the arrangement generated before it ended. It matters most where one party brought in customers who continue to buy after the agreement is over, such as subscribers, repeat clients or long-term contracts.
Typical tail provisions:
The tail should be tied to an objective list — a customer register maintained during the term, with each customer’s start date — so that nobody has to argue later about who introduced whom.
Malls, hotels, hospitals, airports and food courts frequently charge occupiers a percentage of turnover, sometimes as the whole rent and sometimes on top of a minimum. The drafting points in this page all apply, with two more.
First, the document is still a lease or licence of premises, and the rules on stamp duty and registration for leases and licences apply to it. Stamp duty on a lease is usually calculated on the rent, and where the rent varies with turnover, the stamp law of the state may require it to be calculated on an estimated or average figure. Our lease agreement guide explains stamp duty on leases and when a lease must be registered, and our leave and licence guide covers commercial licences.
Second, the occupier’s sales must be measurable. Landlords often require the occupier to use a point-of-sale system that reports to the landlord, to route card payments through a particular terminal, or to provide monthly GST return summaries. The occupier should check exactly what access is being given and to whom.
Digital revenue sharing brings its own complications.
Creators paid through a share of revenue from brand campaigns should also read our influencer agreement guide, and developers our freelance agreement guide on ownership of work.
A revenue sharing agreement usually lasts for years, and the business it describes will not stand still. The agreement should anticipate the changes that are most likely, rather than leaving each one to be renegotiated under pressure.
The same agreement looks different depending on which side of the percentage you are on. Before negotiating, it helps to know which points matter most to you.
| If you receive the share, press for | If you pay the share, press for |
|---|---|
| A closed list of deductions, each backed by a document | Deductions for every amount you do not actually keep |
| Revenue counted as early as possible | Revenue counted when collected, with true-ups |
| A minimum guarantee if you give exclusivity | No minimum, or a minimum that starts after a ramp-up period |
| Monthly statements with raw data and dashboard access | Summary statements, with detail only on audit |
| An annual audit, with costs shifted on underpayment | Limited audit frequency and look-back, and confidentiality |
| Interest on late payment and a right to suspend | A right of set-off for amounts owed to you |
| A tail on customers you introduced | A short tail that falls away if you terminate for breach |
| Consent for bundles and deep discounts | Freedom to set prices and run promotions |
Neither column is unreasonable. A fair agreement usually gives each side the points that protect it against genuine risk and gives way on the points that are merely convenient. What matters is that each point is decided and written down, rather than discovered later.
Where the parties are still exploring the deal, a short term sheet or memorandum of understanding can record the percentage, the revenue definition and the key protections before full drafting begins. Our MoU guide explains how to make clear which parts of such a document are binding.
Stamp duty on a revenue sharing agreement is fixed by the state in which the parties execute it, and the stamp paper or e-stamp certificate should be bought in the first party’s name no later than the day of signing. Treated as a plain agreement, the duty is small in most states; the e-stamp paper guide walks through buying one online. Where the arrangement is in substance a lease, a licence of premises, or a transfer of property, a different article of the stamp law may apply and the duty can be much higher. An unstamped agreement cannot be relied on as evidence until the duty and a penalty are paid.
The agreement should be signed by authorised signatories, supported by a board resolution or authority letter for companies. Electronic signatures are valid for most commercial agreements. Keep a signed copy with the statement template and any schedules attached.
Most disputes under revenue sharing agreements are accounting disputes. They are best resolved by accountants before they reach lawyers.
If the other side simply stops paying, a legal notice is usually the first formal step, and micro and small enterprises may be able to approach the MSME Facilitation Council. Arbitration and court proceedings are for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it. You can find an advocate through our directory.
Return to the restaurant in Lajpat Nagar. Its owner, Harpreet, agrees to let a delivery-only biryani brand operate from her kitchen in the afternoons. The brand’s cooks use her equipment, her gas and her FSSAI-licensed premises; orders come only through delivery apps.
The agreement defines revenue as the amount paid by customers for the brand’s orders fulfilled from the kitchen, excluding GST, less refunds and chargebacks confirmed by the apps, and less the apps’ commissions and payment charges as shown in their settlement reports. Nothing else is deductible. The brand pays Harpreet 18% of that revenue, with a minimum of a fixed monthly amount for the first six months, when volumes are still building.
The brand shares read-only access to its app dashboards for this kitchen, and sends a monthly statement in the attached format by the seventh of each month, with payment by the tenth. Harpreet may audit once a year through her accountant; if the audit shows an underpayment above three per cent, the brand pays the audit cost. Gas and electricity consumed during the brand’s hours are charged separately at a metered rate, not deducted from revenue. The brand may not open another kitchen within two kilometres during the term. Either party may end the arrangement after the first year on two months’ notice.
When, eight months later, the brand starts offering a weekday discount, the revenue share falls. But the discount is shown on customer invoices, reduces the amount customers actually pay, and is within the limit the agreement sets, so the arithmetic is not in dispute. The conversation is commercial, not legal.
Karan, a developer, builds a test-preparation app for a coaching institute in Laxmi Nagar. Instead of charging the full build cost, he takes a reduced development fee and 25% of subscription revenue from the app for three years.
The agreement anticipates the problem that troubled the developer in the introduction. It provides that where the institute sells app access together with offline classes, the price is allocated between them in proportion to their standalone list prices, and the app’s share may not fall below a fixed percentage of the bundle price. Subscriptions are shared when collected, but refunds within the institute’s refund window are trued up against the next payment. App store commissions are deducted; GST is excluded. Karan keeps ownership of the underlying code, licenses it to the institute for the term, and deposits the source code with an agreed third party, released to the institute if Karan stops maintaining the app. Revenue from subscribers who joined during the term is shared at half the rate for twelve months after the agreement ends, unless it ends because of Karan’s breach.
The institute deducts TDS as its accountant advises and issues certificates; Karan invoices his share with GST. Two years in, the institute moves to a new app of its own. The tail clause and the customer register decide what Karan is still owed, without argument.
A revenue sharing agreement from us costs ₹2,499 and is ready in 1 – 3 days. We begin by understanding how the money actually flows in your business — who the customer pays, through which systems, and which reports exist — and draft the definitions around that.
| Included | Why it helps |
|---|---|
| Revenue definition and closed deduction schedule | The arithmetic is mechanical, not negotiable each month |
| Sharing structure: flat, tiered, minimum, advance or cap | The deal you actually agreed, at every level of revenue |
| Statement template and data access clause | The same figures, in the same form, every period |
| Audit, records and underpayment consequences | A way to check, and a reason to report correctly |
| Payment route, set-off, interest and tax clauses | Money that arrives on time, with the right invoices |
| Exclusivity, customers, tail and termination | A fair end as well as a fair start |
Stamp duty is extra at actual cost, and we tell you the total before we start. GST and TDS treatment is for your chartered accountant, and we draft to their advice. If a dispute ever reaches an arbitrator or a court, it is for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.
Most revenue sharing disputes are not about the rate. They are about what the rate is applied to. Tell us who pays whom, through which systems, and what each side contributes, and we will prepare an agreement in which the monthly figure can be calculated, checked and paid without an argument.
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