The Profit Participating Loan Agreement serves as a hybrid financing instrument that bridges the gap between conventional debt and equity financing in the Indian market. This document is particularly useful when companies seek growth capital but prefer not to dilute equity, while lenders desire potential upside participation in the business's success. The agreement details the loan amount, profit-sharing mechanism, calculation methodologies, payment terms, and various protective provisions for both parties. It must comply with Indian regulatory requirements, including RBI guidelines, Companies Act provisions, and applicable tax regulations. This type of agreement is commonly used in growth-stage companies, real estate projects, and other ventures where traditional debt financing may not be optimal. The document includes comprehensive provisions for financial reporting, audit rights, and dispute resolution mechanisms, all structured within the Indian legal framework.
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1. Parties: Identification of the lender and borrower with full legal names and addresses
2. Background: Context of the loan agreement, including purpose and any relevant corporate approvals
3. Definitions: Definitions of key terms used throughout the agreement, including financial metrics for profit calculation
4. Loan Amount and Disbursement: Details of the loan amount, disbursement conditions and procedures
5. Interest and Profit Participation: Structure of basic interest (if any) and mechanism for profit participation calculation
6. Calculation of Profit Share: Detailed methodology for calculating the profit share, including relevant accounting principles
7. Payment Terms: Schedule and mechanics for repayment of principal and payment of profit share
8. Information Rights: Lender's rights to financial information and audit rights for profit verification
9. Representations and Warranties: Standard and specific representations by both parties
10. Covenants: Positive and negative covenants, including financial covenants and operational restrictions
11. Events of Default: Circumstances constituting default and consequences thereof
12. Remedies: Rights and remedies available to parties upon default or breach
13. Term and Termination: Duration of the agreement and termination provisions
14. Boilerplate Provisions: Standard clauses including notices, governing law, jurisdiction, etc.
1. Security: Details of any security or collateral provided for the loan - include if the loan is secured
2. Guarantee: Terms of any corporate or personal guarantees - include if guarantees are provided
3. Conversion Rights: Rights to convert loan into equity - include if conversion feature is desired
4. Prepayment Terms: Conditions and penalties for early repayment - include if prepayment is allowed
5. Foreign Exchange Provisions: Currency conversion and exchange risk provisions - include for cross-border transactions
6. Tax Provisions: Detailed tax treatment and withholding requirements - include if complex tax implications exist
7. Assignment and Transfer: Rights to assign or transfer the loan - include if transferability is desired
8. Step-In Rights: Lender's rights to take control in specific circumstances - include for significant loans
1. Schedule 1 - Profit Calculation Methodology: Detailed formula and examples for profit share calculation
2. Schedule 2 - Form of Disbursement Request: Standard format for requesting loan disbursements
3. Schedule 3 - Conditions Precedent: List of conditions to be satisfied before disbursement
4. Schedule 4 - Financial Covenants: Detailed financial ratios and thresholds to be maintained
5. Schedule 5 - Reporting Requirements: List of required financial and operational reports with timelines
6. Schedule 6 - Security Details: Description of security/collateral if applicable
7. Schedule 7 - Permitted Investments: List of investments allowed under the agreement
8. Appendix A - Corporate Authorizations: Copies of relevant corporate approvals and resolutions
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