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A Revenue Sharing Investment Agreement provides a structured legal framework for investors to fund companies while receiving returns tied to future revenue performance rather than traditional equity ownership. This investment model operates under England and Wales law, offering businesses an alternative funding mechanism that preserves equity while providing investors with revenue-based returns.

When do you need this document?

You need this agreement when establishing revenue-based investment arrangements where traditional equity investment isn't suitable or desired. Companies with established revenue streams, particularly those in SaaS, subscription services, or recurring revenue businesses, use these agreements to secure funding without diluting ownership. Start-ups seeking growth capital while maintaining control, established businesses requiring expansion funding, and investors looking for alternative investment structures with predictable returns all benefit from this arrangement. The agreement is essential when parties want clear legal protection around revenue sharing calculations, payment schedules, and performance metrics.

Key legal considerations

The agreement must clearly define revenue calculations, including what constitutes qualifying revenue and any exclusions such as refunds or chargebacks. Payment mechanisms require detailed specification, including calculation periods, payment dates, and audit rights for investors. Investor protection clauses should address information rights, financial reporting requirements, and remedies for non-payment or breach. The agreement must distinguish between regulated and non-regulated investment activities under FSMA 2000 to ensure FCA compliance. Tax implications under the Income Tax Act 2007 require careful consideration, particularly regarding the treatment of revenue share payments. Directors' duties under the Companies Act 2006 must be considered when companies enter into revenue sharing arrangements, ensuring proper corporate authority and shareholder approval where required.

Legal requirements in England and Wales

Revenue sharing agreements must comply with the Companies Act 2006 regarding corporate authority and directors' duties when companies enter into significant financial arrangements. If the arrangement constitutes a regulated investment activity under RAO 2001, parties must ensure FCA authorisation or rely on appropriate exemptions. The agreement must satisfy contract law requirements for formation, consideration, and enforceability under England and Wales common law principles. Consumer Rights Act 2015 may apply if any party qualifies as a consumer, requiring specific disclosure and fairness provisions. Companies must ensure proper board approval and, where necessary, shareholder consent for material investment arrangements. Financial reporting obligations may arise under company law, requiring disclosure of revenue sharing commitments in statutory accounts and ensuring transparency for existing shareholders and creditors.