What is an Intercompany Loan Agreement Review?
An intercompany loan agreement is a legal contract that serves to document a financial loan between companies within a corporate group. How this type of loan works is that one company lends an agreed-on loan amount to another party, the borrower.
There are various reasons why an intercompany loan could be required, such as if the borrowing company needs to better manage their cash flow.
If you’re reviewing an intercompany loan agreement, you might be uncertain about how to navigate the process.
Read the rest of this article for information about how to conduct an intercompany loan agreement review and how you can benefit from hiring a qualified lawyer to review it for you.
What Key Terms Should You Review in an Intercompany Loan Agreement?
Some of the most important terms to review in your intercompany loan agreement include the following:
- Parties. Identify both companies by their legal names. Include contact details such as their addresses.
- Loan amount. Check that the loan amount is correct.
- Purpose. Identify why the loan is required.
- Interest rate. This must be correct and compliant with transfer pricing. Specify the interest calculation for clarity about how interest accrues and what happens to unpaid interest.
- Repayment. Confirm that how the loan will be repaid is clearly explained, such as by including an installment schedule.
- Default. It’s important to know what will terminate the loan agreement, such as missed payments.
- Representations and warranties. There should be assurances parties make to each other, such as that they have a solid legal standing.
What are Tips for Reviewing an Intercompany Loan Agreement?
When reviewing an intercompany loan agreement, you should pay attention to some important aspects of the contract.
Consider a Subordination Clause
A subordination clause in the agreement clarifies if the intercompany debt will rank lower than external commercial debt, and in what situations, such as if the corporate group encounters financial issues.
Check the Transaction Scope
It’s important to properly define the rights and services being exchanged, depending on what is required, to prevent the agreement from being challenged.
Verify the Pricing Terms
The agreement should specify how prices are determined and the transfer pricing method which applies. The transfer pricing must be compliant with the arm’s length principle, which states that the loan should be structured as though the companies were independent parties. This lets parties consider if an independent lender would have provided the same loan to the borrower.
Identify How Funds Work
You want to check the intercompany loan agreement for clarity about how the funds are provided and what conditions should be met beforehand, such as approvals or supporting documents.
Consider Confidentiality
To protect the companies’ interests, you should include a confidentiality clause in your agreement to restrict sensitive information from being disclosed.
Understand Default
There must be clarity about what constitutes a default and how this can be handled. For example, it might state that there are certain conditions, such as non-payment, in which the lender can demand repayment.
Make sure the agreement states exactly what will happen after a default, such as acceleration of the outstanding loan, so there are no surprises.
Do You Need a Legal Review of an Intercompany Loan Agreement?
There are good reasons why you should hire a lawyer to review your intercompany loan agreement. A lawyer has the legal expertise and experience in contract drafting to know what you should include in your agreement.
A lawyer will help you by:
- Identifying your legal risks. They’ll flag provisions in the agreement that can expose either party to unnecessary financial or legal risks.
- Checking that the agreement is legally enforceable. A lawyer is skilled at identifying if the agreement terms are professionally drafted and legal in the relevant jurisdiction.
- Verifying parties’ authority. They’ll evaluate that both parties have authority to enter into the agreement, such as by checking if corporate authorizations such as board approvals are required.
- Confirm all repayment provisions. They’ll ensure that the loan maturity date and repayment schedule are accurate and fair.
- Reviewing defaults. The lender will check that appropriate and reasonable remedies for not complying with the agreement are included in the contract terms.
- Considering the transaction. For consistency, a qualified lawyer will check that the legal document accurately reflects the loan and how it will work. This provides clarity and prevents disputes.
- Protecting parties from disputes. To minimize your risk of disputes in the future, a lawyer will check that all provisions are fair and clear.
- Revising any vague language. If the contract contains ambiguous wording that can be open to misinterpretation, the lawyer will replace it with specific terms that are easy for both parties to understand.
Where to Find and Hire a Lawyer to Review Your Intercompany Loan Agreement
If you’d like to hire a lawyer to review your intercompany loan agreement to protect your interests, you might wonder where to find one who’s reputable and experienced. The process of finding a lawyer is made much easier by using an online legal marketplace that gives you access to qualified lawyers.
ContractsCounsel is one of the largest online legal marketplaces enabling you to connect to a curated network of lawyers. All the lawyers on the platform have been vetted, and they have extensive contract writing and review experience to assist you.
To request that a lawyer on the platform reviews your intercompany loan agreement, follow these steps:
- Go to the ContractsCounsel marketplace, which makes it free to post your project.
- Include details about your project to match with the right lawyers, such as why you need a review of your contract.
- Wait for bids. You’ll receive bids from multiple lawyers on the platform who are ready and willing to help you.
- Review the lawyer information. The platform provides a range of lawyer information on their profiles, such as their location, expertise, years of experience, credentials, and client ratings for completed projects on the platform.
- Select a lawyer and hire them to review your intercompany loan agreement for a flat fee.
