A price that doesn’t fluctuate with the market is known as a set price. There are no influencing factors. These deciding elements typically have to do with supply and demand. Economic theory states that when a product’s supply on the market rises, its price decreases, and when supply decreases, its price rises to owe to scarcity. On the demand side, a product’s price will go up when demand goes up and down when demand goes down. When fixed-price agreements are used to determine a product’s price, these principles become moot. Both goods and services can be sold through fixed-price agreements. If a price is legally fixed, it indicates that even if supply and demand fluctuate, it won’t alter. The price will not decrease if supply increases unexpectedly, just as it won’t rise if demand increases. These agreements are used in contracts for financing between businesses or investors. Fixed-price agreements are entered into by economic parties to benefit from the market. This advantage mostly comes from reducing the effects of external causes, which reduces financial risk.
The partners are specifically prohibited by law from making any fixed payments other than those that are in accordance with their actual shares, which must be made as a percentage of the shareholding and not as a fixed amount. The next issue is how to proceed with a fixed payment schedule to the National Partner in this situation. It is necessary to elaborate on the process as to how to ensure a fixed payment to compensate the National Partner for being an actual partner with less power and a limited profit ratio since we have stated in the previous article that the profit shares and liquidation dividend shall be 1 per cent to 0.5 per cent with limitations.
First, the fixed profit payment in accordance with legal requirements
It is not permissible to pay the National Partner a predetermined profit ratio rather than a profit percentage due to the Federal Civil Transactions Law. Article 660 of the Federal Civil Transactions Law has placed limitations on partnerships where a partner shares a fixed profit amount regardless of the shareholding ratio and has declared such relationships to be void. It has further stated that the profit distribution should be made in accordance with the shareholding percentage of the partners and that any terms that were previously agreed upon are void. The Civil Transaction Law’s Article 660;
“The condition shall be void and the profits shall be allocated in accordance with the participation of each partner in the capital,” states the partnership agreement. “If the partners agree that the portion of any of them in the profits should be a fixed quantity of money.”
Second: The Legal Restrictions
The Partners cannot impose a predetermined profit threshold or stop a Partner from making a profit. However, as long as all partners authorize it and concur to the terms of payment, the law does not prohibit the company from paying any partner a fixed sum of money for doing particular services.
Third: The dangers of using a fixed payment term in the Nominee Shareholder Agreement, which is customary
In view of the current rules as described above and in earlier articles, the common practice of signing Nominee Shareholder Agreements or Trustee Agreements that specify a predetermined amount to be delivered to the National Partner as compensation will lead to the liquidation of the LLC. Even if we infer that the National Partner consented to a set profit figure in order to avoid the illegal/illegal solution, it will still be invalid. But is still a great idea to seek advice from a well-qualified financial lawyer.
Fourth: The Solution
The LLC should enter into an Independent Contract with the National Partner, which should be limited to the fact that the National Partner is the partner, to carry out certain duties of representation before local authorities in exchange for a set sum to be paid annually to him. This contract should be valid as long as the National Partner is the partner of the company, a profit ratio of 1% or 0.5 per cent will be taken into account as part of the consideration of this Independent Contract, and we will set the terms stating that when the profit ratio exceeds the consideration payable to the National Partner, the other partners shall not pay the National Partner any consideration. The Independent Contract will also deem terminated upon his sales of shares.
Advantages of Fixed-Price Agreements
A fixed-price contract has many advantages for the parties involved as a financial asset. One can profit from this agreement as a provider by avoiding the danger of price decreases. Naturally, a product or service’s price will drop as it loses favor with the market. The buyer must continue buying the seller’s product at the fixed price even though the market has made it more affordable when a seller and buyer have agreed to a fixed-price contract. Buyers might avoid paying extra for goods and services by adhering to the terms of the agreement. Buyers won’t be required to pay extra if market prices increase when they join into a fixed-price contract. As they are unable to benefit from price appreciation in this situation, the seller will bear the liability. Additionally, sellers run the danger of having to pay more for production materials or having a longer production schedule. When they sign a fixed-price contract, they do this by raising the price.