A toll conversion agreement is one which is entered into between two companies wherein one company hires another for either conversion, processing or transportation of goods. The goods are usually raw materials or the finished product. The toll conversion agreement comes into existence mostly in the oil and gas production sector in which the company being hired is not required to purchase either raw material or sell the finished product. The second company acts only as a facilitator to help the hiring company in attaining conversion of goods from raw material stage to finished product stage.
Some of the key elements that are included in the toll conversion agreement include details of raw material that needs to be processed or converted or transported, details of hiring company, details of contract company, date of starting activity, maturity date of hiring, cost of conversion or processing or transportation as applicable, warranties and indemnity from both the parties to the agreement and termination clause.
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