Finder's Fee Agreement

A Finder's Fee Agreement in the United States sets out the rights, duties and consideration binding the parties to it.

The central legal distinction that governs finder's fee arrangements in the United States is the difference between a finder and a broker-dealer. Under Section 15(a)(1) of the Securities Exchange Act of 1934, it is unlawful for any broker or dealer to use the mails or instrumentalities of interstate commerce to effect transactions in securities without being registered with the SEC. A 'broker' is defined in Section 3(a)(4) as any person engaged in the business of effecting transactions in securities for the account of others. Finders who limit their role to making introductions — without participating in negotiations, structuring deals, advising on valuations, or soliciting investors — have historically taken the position that they are not brokers and therefore not required to register. However, the SEC has pursued enforcement actions against self-styled 'finders' who received transaction-based compensation for activities that crossed into broker-dealer territory, and courts have applied the broker definition broadly. As of 2026, no formal SEC finder exemption from broker-dealer registration exists for securities transactions.

Finder's fee arrangements in non-securities contexts — introductions of customers, suppliers, real estate transactions, business referrals, and corporate acquisitions of non-public companies — are generally governed only by contract law and do not trigger securities registration requirements, though real estate finder referrals in states requiring broker licensing (all 50 states) may require the finder to hold a real estate license to receive compensation.

A Finder's Fee Agreement differs from a referral fee agreement and a broker agreement in the scope of the finder's involvement. A pure finder makes an introduction only — passing contact information between parties — and has no further role in the transaction. A referral fee agent may remain involved through the client engagement process. A broker or agent participates in negotiations, advises on deal terms, and assists in transaction structuring. The Finder's Fee Agreement must clearly define the finder's limited role to preserve the argument that securities registration is not required.

A Finder's Fee Agreement is needed before any introduction is made by the finder — executing the agreement after the introduction has already been made creates a disputed-consideration problem and may not protect the finder's right to compensation if the client claims the introduction was gratuitous.

Capital raises and venture funding require finder's fee agreements when a founder, startup advisor, or network connector introduces a company to angel investors, venture capital firms (Andreessen Horowitz, Sequoia Capital, Kleiner Perkins), family offices, or private equity sponsors. Given the SEC's aggressive enforcement posture on unregistered broker activity in securities transactions, companies raising capital should consult securities counsel before engaging finders for investor introductions, and finders should confirm their role is strictly limited to introductions.

Mergers and acquisitions involve finder's fee arrangements when a business broker or corporate advisor — not registered as an investment bank — introduces a buyer and a seller of a private company. M&A intermediaries operating as unregistered finders are common in the lower middle market (companies with $1 million to $25 million in EBITDA), though the SEC has indicated that transaction-based compensation for M&A introductions may require broker-dealer registration absent a specific exemption.

Real estate transactions frequently involve finder's fees for introducing buyers to off-market properties or connecting developers with land opportunities. California, New York, and all other states require real estate brokers' licenses for parties receiving compensation for real estate transaction introductions. Unlicensed finders who receive compensation for real estate introductions violate state real estate license law and may be required to disgorge their fee.

Business development and sales referrals in B2B contexts — a consultant introducing a software vendor to a corporate client, a staffing firm referring a candidate to a client company, or a logistics consultant introducing a manufacturer to a freight carrier — are the most straightforward use case for finder's fee agreements because they involve no securities and typically no licensing requirements.

Strategic partnership and joint venture introductions — introducing a US company to a potential international distribution partner, licensing partner, or joint venture counterparty — commonly use finder's fee structures where the finder receives a percentage of the value generated by the resulting commercial relationship.

A legally enforceable US Finder's Fee Agreement must define the scope of the finder's role, the trigger event for payment, the fee amount or formula, and the tail period with sufficient precision to be enforceable and to minimize securities law risk.

Party identification and finder's role: The agreement must identify the client (the party receiving the introduction) and the finder (the party making it) by full legal name and state of organization. Critically, the agreement must define the finder's role as limited to making introductions — providing contact information, arranging a first meeting, or facilitating an initial communication — and must expressly state that the finder will not participate in negotiations, advise on deal valuation or structuring, solicit investors, or engage in any activity that could constitute acting as a broker-dealer under Section 15(a) of the Securities Exchange Act of 1934. This limitation is essential for securities transactions.

Scope of covered introductions: The agreement must define which introductions are covered. A narrowly scoped agreement covers only specifically named third parties or a defined category (e.g., investors in a specific funding round). A broadly scoped agreement covers any introduction resulting in a defined type of transaction. The scope definition affects the finder's ability to claim fees for introductions the client argues were not contemplated by the agreement.

Trigger event for fee payment: The trigger event is the most commercially significant — and most litigated — term in a finder's fee agreement. The most common and client-favorable trigger is closing of a definitive transaction: the finder is paid only when a binding agreement is executed and the transaction actually closes. Other triggers include execution of a letter of intent or term sheet, commencement of formal negotiations, or simply making the introduction (a flat fee regardless of outcome). The agreement must state the trigger event with precision — 'closing' should be defined as the date funds are exchanged and the transaction is consummated, not merely the signing of a definitive agreement.

Fee amount and calculation: The agreement must state the finder's fee as either a fixed dollar amount or a percentage of the transaction value. For M&A transactions, the Lehman Formula and its Double Lehman variant are common market standards: 5% of the first $1 million of transaction value, 4% of the second million, 3% of the third million, 2% of the fourth million, and 1% of the balance. For capital raises, 3% to 7% of gross capital raised (sometimes with warrants covering 1% to 3% of shares sold) is typical. For business referrals, 5% to 15% of the first year's contract value is common. The agreement must define 'transaction value' — whether it includes contingent earn-out payments, assumption of liabilities, or non-cash consideration.

Tail period: The agreement must specify a 'tail' or 'sunset' period — the duration after the agreement's expiration or termination during which the finder remains entitled to a fee if a transaction closes with a party introduced during the agreement's term. Typical tail periods range from 12 to 24 months. Without a tail provision, a client could terminate the agreement the day after receiving an introduction and then close the transaction free of any finder's fee obligation.

Exclusivity and non-circumvention: The agreement should state whether the finder has exclusive rights to introduce potential counterparties in the covered category, or whether the client may engage multiple finders simultaneously. A non-circumvention clause prohibits the client from communicating directly with introduced parties to avoid the finder's fee — a critical protection for finders who make introductions to institutional counterparties that the client then contacts independently.

Governing law and dispute resolution: The agreement should specify the governing state law, dispute resolution mechanism (arbitration under JAMS or AAA rules is common for high-value finder's fee disputes), and the prevailing-party attorney's fees provision.