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Profit Participating Loan Agreement for United Arab Emirates

Profit Participating Loan Agreement Template for United Arab Emirates

A comprehensive financing agreement governed by UAE law that combines traditional lending mechanisms with profit-sharing arrangements. This hybrid structure allows lenders to participate in the borrower's business success while providing capital, making it particularly suitable for UAE's dual legal system that incorporates both civil law and Sharia principles. The agreement details the loan facility, profit-sharing mechanics, payment terms, and includes specific provisions for compliance with UAE banking regulations and, where applicable, Islamic finance principles.

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Profit Participating Loan Agreement

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What is a Profit Participating Loan Agreement?

The Profit Participating Loan Agreement is a sophisticated financing instrument used in the United Arab Emirates when parties seek to establish a lending relationship that goes beyond traditional fixed-interest loans. This document is particularly valuable in scenarios where lenders wish to participate in the borrower's business success while maintaining creditor rights. The agreement combines elements of conventional lending with profit-sharing mechanisms, making it compatible with both traditional banking and Islamic finance principles under UAE law. It typically includes detailed provisions for profit calculation, distribution mechanisms, security arrangements, and compliance with UAE Central Bank regulations. The document is especially relevant for growth financing, project funding, and various commercial ventures where both parties seek to align their interests through profit participation.

What sections should be included in a Profit Participating Loan Agreement?

1. Parties: Identification of the Lender(s) and Borrower(s) with full legal names and addresses

2. Background: Context of the loan arrangement and brief description of the business purpose

3. Definitions and Interpretation: Defined terms, including specific profit-sharing terminology and calculation methods

4. The Facility: Details of the loan amount, purpose, and drawdown mechanics

5. Profit Sharing Mechanism: Detailed explanation of how profits will be calculated and shared between parties

6. Conditions Precedent: Conditions that must be satisfied before the loan becomes effective

7. Representations and Warranties: Standard and specific declarations by the Borrower about their business and capacity

8. Covenants: Positive and negative obligations of the Borrower during the loan term

9. Information Undertakings: Borrower's obligations to provide financial and operational information

10. Payment Provisions: Terms for repayment of principal and profit distributions

11. Events of Default: Circumstances that would trigger default and remedies available

12. Security: Details of any security or guarantees provided

13. Boilerplate Provisions: Standard legal provisions including notices, amendments, governing law, etc.

What sections are optional to include in a Profit Participating Loan Agreement?

1. Sharia Compliance: Specific provisions ensuring compliance with Islamic finance principles - include if the agreement needs to be explicitly Sharia-compliant

2. Syndication Provisions: Include if multiple lenders are involved or if syndication is contemplated

3. Currency Provisions: Include if the loan or profit payments involve multiple currencies

4. Tax Provisions: Detailed tax arrangements - include if cross-border elements or complex tax structures are involved

5. Agent Provisions: Include if a facility agent or security agent is appointed

6. Assignment and Transfer: Include if the parties want to allow for transfer of rights or obligations

7. Regulatory Compliance: Include specific provisions if the borrower operates in a regulated industry

What schedules should be included in a Profit Participating Loan Agreement?

1. Conditions Precedent: Detailed list of required documents and conditions

2. Form of Drawdown Request: Template for requesting loan disbursements

3. Calculation of Profit Share: Detailed methodology and examples of profit-sharing calculations

4. Form of Compliance Certificate: Template for periodic compliance reporting

5. Security Documents: Forms of security agreements and guarantees

6. Financial Covenants: Detailed financial ratios and calculations

7. Permitted Investments: List of approved investment activities for borrowed funds

8. Form of Transfer Certificate: Template for transferring rights/obligations if permitted

Authors

Alex Denne

Head of Growth (Open Source Law) @ tiktok成人版 | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Document Type

Financing Agreement

Cost

Free to use
Relevant legal definitions














































Clauses



































Relevant Industries

Banking and Financial Services

Real Estate Development

Manufacturing

Technology and Innovation

Healthcare

Hospitality and Tourism

Infrastructure Development

Energy and Resources

Trading and Commerce

Construction

Retail

Agriculture

Relevant Teams

Legal

Finance

Treasury

Compliance

Risk Management

Corporate Banking

Islamic Banking

Credit

Commercial

Corporate Strategy

Business Development

Relevant Roles

Chief Financial Officer

Finance Director

Legal Counsel

Corporate Lawyer

Investment Manager

Compliance Officer

Risk Manager

Treasury Manager

Islamic Finance Specialist

Commercial Director

Business Development Manager

Corporate Banking Manager

Credit Risk Officer

Financial Controller

Company Secretary

Industries








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