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I have a few domain names I want to sell. Because some of them have an extremely high potential to earn the buyer big money when turned into a prosperous, profitable business, I've thought about negotiation an extremely-low sale price for select domains, but under equity stake contracts (meaning the buyer gives me a small piece of the business(es) earnings used by that domain).

I don't want any legal advice here: What I want are ideas on such a thing when it comes to financial dues and obligations. I have never heard of such a thing, and I'm wondering if I'd be among the first to do this. For example, I sell a hypothetical domain called "Magic(dot)com" for $100, despite it being very unique and likely to sell for way more. I do require the buyer to sign a contract stating that any income made from any business that the domain is in connection with must pay me a 1% share for 'X' amount of years. We both take a risk, because if their business makes money with that domain, I will be legally required to be paid a percentage of the earnings -- so if they don't make much, neither do I.

I'm wondering about the feasibility of such a business plan:

  1. Is it an unattractive offer many buyers would shy away from?
  2. Does it seem like a justifiably fair way to sell a domain, while keeping a stake in it?
  3. Is this even done, or has this ever been done before?
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    The obvious problem; I set up a corporation to buy magic.com for $100 with 1% share of profits. I set up a second corporation to buy magic.com from the first, for $100. The second corporation is the one that actually runs all the business. You aren't entitled to any profits. Your arrangement was with the first corporation, which is now shut down. – ChrisInEdmonton Jan 5 '17 at 13:56
  • Are domain names actually worth much? Pretty much everybody uses search engines and never actually types in the domain or really notices it. – zeta-band Jan 5 '17 at 16:10
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    Possible in theory, but odds of anyone taking that deal are zilch. – keshlam Jan 6 '17 at 5:13
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    @zeta-band - Highly-desirable domains can go for $1,000+. It's all about brand recognition and having a domain that makes your business stand out is very important. If you go to a domain re-seller, like GoDaddy, and search for common words like "business", you'll see options closing in on $10,000. – BobbyScon Jan 20 '17 at 13:54
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    @zeta-band It depends on the domain. According to this source one individual earned $3 million from selling vodka.com. I contacted that person a while back and they wanted tens of thousands of dollars for pinochle.com. I didn't buy the domain from them, because I couldn't afford it nor justify that expense for my small project. – Erik Jan 20 '17 at 19:03
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Is it an unattractive offer many buyers would shy away from?

Buyer who have specific plan may skip getting into such deals as this would be an hindrance to resell the business. Others who are not sure, may buy it for to make money in future.

Does it seem like a justifiably fair way to sell a domain, while keeping a stake in it?

This is preview of individual opinion. There is nothing fair or unfair in such deals.

Is this even done, or has this ever been done before?

Possibly. I don't know.

Other Aspects:
Although this may appear as a good way to cash in on upside, it is not always easy. If magic goes to court and establishes that you were a squatter just to make windfall without any plan, the contract becomes void.

If the other party some how manages to make say 1 billion from this site, they would have enough lawyers and accountants to structure the business. So they way it would quickly get restructured is ABC Inc will buy Magic from you with the contract. ABC will give this on lease to XYZ for a consideration of $100 per year as usage. XYZ will make 1 billion. So your share is limited only on $100 royalty paid to ABC.

  • +1 for your last paragraph. The problem with deals like this is ensuring that you will actually get what you hope for if they do make a lot of money. That is difficult to do and large companies regularly sue each other alleging breakage of such agreements. Anyone will gladly pay you Tuesday for a hamburger today. – BrenBarn Jan 8 '17 at 5:04
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    Also note about the squatter comment - If you own a domain that contains a trademarked name or term, you could be legally forced to give it up for next to nothing. (In the US at least). Check out the Anticybersquatting Consumer Protection Act. – BobbyScon Jan 20 '17 at 13:56
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Keep in mind, if the name is trademarked, you might have it taken away from you. If it's generic, there's a good chance the potential buyer would just move on and set up another domain name. Consider web names such as Stockpickr. The proper spelling is there, and remains unused, "This domain may be for sale" at the top of the page. I'm guessing they asked for too much money and the potential buyer just decided to move on.

We are at the point where the new domain extensions (.space .name .guru and hundreds more) have watered down the potential value of many sets of words. I'm sure there are still good names, and yours might be as good as you think, but you might find resistance getting a deal that lasts beyond the sale date.

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As it stands equity contracts in startups are by default structured differently. The standard equity is shares or convertible notes.

Having equity that's structured in the way you propose is a bad idea for both sides. VC don't like equity that's not done with standard equity contracts. If the lawyer of the VC has to review your equity document and understand how the exact terms work that makes it more complicated to invest money into the startup.

On your end it might not be fair because a company doesn't need to make any income to be successful. Various companies manage to reduce their tax burden to next to nothing by clever accounting that results in having no taxable income.

Uber brought the uber.com domain name with 2% equity at the beginning, so there are certainly deals that get made with equity.

There are also other kinds of deals where domain names don't get sold for a one-time payment but with regular payment for 8 years where the domain names goes back to the seller if the company folds or otherwise doesn't want to pay anyone.

  • Correct. You can also lease domains, and there are even companies that will give you a loan to buy a domain. – Erik Jan 20 '17 at 19:10

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