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Profit Sharing Loan Agreement for Canada

Profit Sharing Loan Agreement Template for Canada

This document is a comprehensive loan agreement governed by Canadian law that combines traditional debt financing with profit-sharing elements. It establishes the terms for a loan where the lender receives both interest payments and a share of the borrower's profits as compensation. The agreement includes detailed provisions for calculating profit share, reporting requirements, security arrangements, and remedies under Canadian federal and provincial legislation. It addresses both the lending and profit-sharing aspects while ensuring compliance with Canadian securities laws, usury regulations, and corporate law requirements.

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Profit Sharing Loan Agreement

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What is a Profit Sharing Loan Agreement?

The Profit Sharing Loan Agreement is designed for situations where traditional debt or equity financing alone may not meet the needs of the parties. This agreement, governed by Canadian law, is particularly useful for businesses seeking growth capital without diluting ownership, while offering lenders potential upside through profit participation. It combines elements of both debt and equity financing, providing detailed mechanisms for loan repayment and profit sharing calculations. The document includes comprehensive provisions addressing securities regulations, corporate law requirements, and tax implications under Canadian federal and provincial legislation. It's commonly used in growth-stage companies, real estate development projects, and other ventures where revenue sharing or profit participation is an appropriate financing structure.

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

1. Parties: Identification of the lender and borrower, including full legal names and addresses

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

3. Definitions: Key terms used throughout the agreement, including specific definitions of 'profit', 'revenue', and other financial metrics

4. Loan Amount and Disbursement: Specification of the principal amount and how/when it will be advanced

5. Interest Rate: Base interest rate terms, separate from profit-sharing components

6. Profit Sharing Mechanism: Detailed explanation of how profits will be calculated and shared, including calculation periods and payment dates

7. Term and Repayment: Duration of the loan and repayment schedule for principal amount

8. Security: Description of any security or collateral provided for the loan

9. Representations and Warranties: Standard and specific declarations by the borrower about their business and financial condition

10. Covenants: Ongoing obligations of the borrower, including financial reporting and business operation requirements

11. Events of Default: Circumstances that constitute default and consequences

12. Rights of the Lender: Powers and remedies available to the lender, including audit rights

13. General Provisions: Standard boilerplate clauses including notices, amendments, and governing law

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

1. Prepayment Rights: Terms for early repayment of the loan, used when early repayment is permitted

2. Conversion Rights: Option to convert the loan into equity, included when this feature is desired

3. Subordination Provisions: Used when there are other lenders and priority needs to be established

4. Change of Control: Provisions dealing with change in borrower ownership, relevant for corporate borrowers

5. Information Rights: Detailed reporting requirements beyond standard financial statements, used for complex profit-sharing calculations

6. Tax Provisions: Specific tax treatment and responsibilities, important when tax implications are complex

7. Currency Conversion: Required when profit is calculated in one currency but paid in another

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

1. Profit Calculation Methodology: Detailed formula and examples of how profit share will be calculated

2. Form of Compliance Certificate: Template for periodic certification of financial covenants and profit calculations

3. Security Documents: Forms of any security agreements or registrations

4. Permitted Encumbrances: List of approved existing or future liens and encumbrances

5. Required Financial Reports: Templates and specifications for required financial reporting

6. Payment Schedule: Detailed schedule of base loan payments and profit share payment dates

7. Excluded Items from Profit Calculation: List of specific items to be excluded from profit calculations

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

Jurisdiction

Canada

Document Type

Finance Agreement

Cost

Free to use
Relevant legal definitions









































Clauses




































Relevant Industries

Technology

Manufacturing

Real Estate Development

Renewable Energy

Mining

Agriculture

Entertainment

Healthcare

Retail

Professional Services

Construction

Food and Beverage

Relevant Teams

Legal

Finance

Treasury

Compliance

Risk Management

Corporate Development

Tax

Accounting

Executive Leadership

Business Development

Relevant Roles

Chief Financial Officer

Finance Director

Legal Counsel

Corporate Lawyer

Investment Manager

Business Development Director

Financial Controller

Treasury Manager

Risk Manager

Compliance Officer

Chief Executive Officer

Chief Operating Officer

Commercial Director

Investment Analyst

Corporate Secretary

Industries








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Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks, 聽Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination, 聽Severance Pay, Governing Law, Entire Agreemen

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