A profit maintenance agreement is a deal between two companies where usually one company is the subsidiary of another and where both mutually profit from each other by calculating and maintaining the value of the capital and profits. For example, an auto company may be offered financing by its credit financing subsidiary for a particular period of time and in return the subsidiary will receive payments from the mother company either every quarter or at the end of the financial year so that it makes a profit.
A company makes a profit only if the net assets at the end of a particular period are more than the invested capital. In case the subsidiary makes an income which is more than 1 or 2% of the invested capital, the subsidiary will make a repayment of the amount to the main company, The profit maintenance agreement must mention the names of both the parties clearly and also mention terms under which the agreement will be cancelled.
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[Also Read: Joint Venture Agreement]
Sample Profit Maintenance Agreement
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