This is an agreement between a parent company and its subsidiary company. The
agreement provides that the parent company promises to protect the balance sheet of
the subsidiary company and will reimburse the subsidiary company against any losses it
suffers. In addition, the subsidiary promises that it will transfer any profits to the parent
company. This agreement is useful for small businesses or other entities that have
subsidiaries and want to protect the subsidiary against losses while collecting its profits.
PROFIT AND LOSS AGREEMENT
This Profit and Loss Agreement (the “Agreement”) is hereby made and entered
into on this ____ day of ___________, 2________ by and between ________________
(“Parent”) and ______________________ (“Subsidiary”).
In consideration of the foregoing, of the mutual promises and covenants contained
herein, and of other good and valuable consideration, receipt of which is hereby acknowledged,
Parent and Subsidiary agree as follows:
1.00 TRANSFER OF PROFITS
1.01 Parent is the sole shareholder of Subsidiary.
1.02 Pursuant to this Agreement, Subsidiary shall transfer any and all of its profits to
1.03 Any and all profits that are subject to any allocation or release of other retained
earnings shall be the net income at Subsidiary’s fiscal year end prior to the transfer of any
profits, less any and all losses carried forward from the previous fiscal year.
1.04 Subsidiary shall, upon prior approval of Parent, allocate a portion of its net fiscal
year end income to other retained earnings to the fullest extent permitted under any applicable
laws of the relevant jurisdiction.
1.05 Any and all other retained earnings that are established during the term of this
Agreement shall be released upon the written request of Parent and shall be used by Parent to
compensate for any annual loss or shall be transferred as profit.
1.06 Any and all amounts transferred from the release of other retained earnings or the
transfer of profits and from capital reserves shall be excluded.
2.00 ASSUMPTION OF LOSS BY PARENT
2.01 Parent shall be obligated, on an annual basis, to assume or pay any and all losses
during the term of this Agreement.
3.01 Parent shall pay, to any and all external shareholders of Subsidiary, for each and
every fiscal year, and in respect of their percentage of shares owned, compensation amounting to
__________ percent (__%) of the nominal value of their respective shares (the “Compensation”).
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3.02 All Compensation due and owing to any and all external shareholders is due and
payable upon the written approval of the shareholders at an annual meeting of the shareholders
for the purposes of reconciling the annual accounts of Subsidiary.
3.03 Should this Agreement be terminated during any fiscal year of Subsidiary, the
Compensation shall be granted to any and all external shareholders on a pro rata basis.
3.04 Upon the written request of any external shareholder, Parent shall acquire all of
the external shareholders’ shares. The amount due and payable in respect of Parent acquiring
any external shareholders’ shares shall be the nominal value of the shares and shall be paid in
cash by Parent to such external shareholders and such shareholders shall not incur any costs
3.05 The obligation of Parent to acquire any external shareholders’ shares, shall expire
__________ (___) months after the written approval of the shareholders at the shareholders
meeting in respect to this Agreement.
4.00 EFFECTIVE DATE
4.01 This Agreement shall be effective on the ____ day of ________, 2______ and
shall continue until the ____ day of __________, 2_______.
4.02 This Agreement may be renewed or extended for ______ (__) year(s) upon
termination, unless this Agreement is terminated by either Parent or Subsidiary, upon providing
_______ (___) days’ written notice to the other.
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5.01 This Agreement shall be terminated by notice of either Parent or Subsidiary at any
time for cause. Parent and Subsidiary hereby agree that such cause or causes shall be as follows:
a A transfer of the majority of the shares in Subsidiary from Parent to any
third party, other than a Subsidiary of Parent;
b. In the event of an increase of the share capital of Subsidiary, as a result of
which Parent is no longer the majority shareholder of Subsidiary; or
c. Any reorganization or amalgamation or dissolution of either Parent or
5.02 Should this Agreement be terminated with cause, Parent shall be obligated to
recover the loss that occurred upon the date on which Parent ceases to be the majority
shareholder of Subsidiary.
6.00 GENERAL PROVISIONS
6.01 This Agreement shall be approved at the annual general meeting of Parent’s
shareholders and upon approval of all of Subsidiary’s shareholders.
6.02 If any provision of this Agreement is found by a court of competent jurisdiction to
be unenforceable, such provision shall not affect the other provisions, rather, such unenforceable
provision shall be deemed modified to the extent necessary to render it enforceable, preserving to
the fullest extent permissible the intent by the parties set forth therein.
6.03 This Agreement shall be construed as to both validity and performance and
enforced in accordance with and governed by the laws of the State of ___________________.
6.04 This Agreement shall constitute the entire agreement between the parties and any
prior understanding or representation of any kind preceding the date of this Agreement shall not
be binding upon either party to this Agreement except to the extent incorporated in this
6.05 Any modification to this Agreement must be in writing, signed by the parties or it
shall have no effect and be void.
6.06 The headings utilized in this Agreement are for convenience only and are not to
be construed in any way as additions to or limitations of the covenants and agreements contained
in this Agreement.
6.07 This Agreement may be executed in several counterparts, each of which when so
executed shall be deemed to be an original and such counterparts, together, shall constitute one
and the same instrument and shall be effective as of the formal date hereof. This Agreement may
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be executed and transmitted via e-mail and/or facsimile transmission and, in such event, shall be
effective and binding on the parties hereto and their successors and assigns as if originally
6.08 Neither party may assign, transfer, nor delegate any of its rights or obligations
hereunder without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
DATED this _________day of ____________, 20___.
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