Intercompany Agreements: A Checklist for Group Companies

Why written agreements matter inside a group

In a business group, companies constantly work for each other: one provides IT support, another shares office space, a third lends money or uses a common brand. Because the same promoters run these companies, such arrangements are often informal. That creates problems later — in audits, tax assessments, bank due diligence, disputes between shareholders or when one company is sold.

Clear intercompany agreements record who does what, at what price and on which terms, just as you would with an outside party.

Common types of intercompany arrangements

• Shared services: accounts, HR, IT, legal or marketing provided by one company to others.
• Cost-sharing: rent, utilities, software licences or staff costs split between companies.
• Loans and guarantees: funds lent between companies or guarantees given for bank borrowing.
• Use of brand and intellectual property: one company owns the brand, others use it.
• Supply of goods: one company manufactures or trades, another sells.

The checklist

• Scope: describe the services or goods precisely, with service levels where relevant.
• Pricing: set an arm's-length basis — cost plus a mark-up, market rates or another documented method.
• Invoicing and payment terms: frequency, due dates and interest on delays.
• Taxes: GST on intercompany supplies, TDS where applicable and transfer pricing rules where they apply.
• Approvals: board and, where required, audit committee or shareholder approval for related-party transactions under the Companies Act.
• Term, termination and dispute resolution.
• Confidentiality and data protection, especially for shared IT and HR data.

A worked example

Imagine a group where Company A runs the accounts, HR and IT team for four sister companies. Without an agreement, Company A bears all the salary and software cost, while the others benefit for free. Profits of each company are distorted, GST may not be charged correctly, and if Company B is later sold, the buyer will ask how much it would cost to replace these services.

With a simple shared-services agreement, Company A charges each sister company a monthly fee based on actual cost plus a modest mark-up, allocated by a clear key such as headcount or number of transactions. Invoices carry GST where applicable, each company's accounts show the true cost of running the business, and the arrangement is approved and recorded properly. If the group restructures, everyone knows what is being transferred.

The same thinking applies to a company that owns the group brand and allows sister companies to use it, or to a company that lends surplus cash to another. Writing down the terms costs a little time today and prevents expensive arguments later.

Common mistakes to avoid

• Backdating agreements after an audit query instead of signing them before services start.
• Using a generic template that does not describe the actual services.
• Charging nothing for services, or charging round numbers with no basis.
• Forgetting to renew agreements that have expired.
• Ignoring stamp duty requirements for agreements executed in Rajasthan or other states.

A short annual review by finance, legal and the company secretary catches most of these issues before auditors or tax officers do.

Keep the paperwork alive

Agreements are only useful if practice matches paper. Raise invoices as agreed, review pricing every year and update agreements when the scope changes. Keep a register of all intercompany agreements with renewal dates.

Our guide on related party transactions in group companies explains the approval side in more detail, and the compliance calendar for multi-entity groups helps track filings.

Get the right professionals involved

Intercompany arrangements touch company law, tax and accounting. Draft them with a qualified lawyer and review the tax position with your chartered accountant. ATTPL Legal can help with drafting, and ATTPL Consultancy with GST and compliance processes. To discuss group governance support, contact us.

Frequently asked questions

Sources and further reading

• Ministry of Corporate Affairs
• CBIC GST portal