Keepwell Agreement (Letter of Comfort) - Explained
What is a Letter of Comfort?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is a Keepwell Agreement?
Keep-well agreement refers to a legal contract initiated by a parent company to its subsidiary, for the purpose of maintaining financial backing and solvency, throughout the agreed period. A subsidiary refers to a company with fifty percent of shares owned by a parent company. The support provided in the contract gives potential lenders confidence, and at the same time, increasing the creditworthiness of the subsidiary. Keepwell agreements are also known as comfort letters.
Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP
How is a Letter of Comfort Used?
Keepwell agreement gives specifications on how long the parent company is willing to offer financial support to the subsidiary. What this means is that a subsidiary with this document has a high chance of the lending institutions approving its loan requests. The contract also enables the subsidiary and the suppliers to close business deals easily. Note that this document is an assurance to the suppliers that they will receive their payment. The document helps the subsidiary to increase its creditworthiness. Through this, it can easily attract potential investors to invest in its securities. Through credit enhancement, a company is able to reduce the risk related to default. So, this document is among the many financial documents that offer credit support to the third-party. The document is usually for a period of time, depending on what the two parties have agreed on. It means that provided that the contract is active, the parent company will continue to guarantee the subsidiary's principal and interest payments obligation. So, when the subsidiary company happens to run into solvency issues, its shareholders, and lenders will be covered by the parent company.
Importance of Keepwell Agreement
- The document also increases the creditworthiness of a subsidiary company, making it easy to access loans from lenders.
- The document places a financial obligation on a parent firm. A subsidiary with this document has a high credit rating compared to those without.
- The document also increases the creditworthiness of the subsidiary company, making it easy for it to access loans from lenders.
- The contract places a financial obligation on a parent firm. A subsidiary with a keepwell agreement, in most cases, has a high credit rating compared to that without.
- Business Entities (Intro)
- Why is studying business entities important?
- Considerations When Forming a Business Entity
- Holistic (Detailed) Overview of Setting Up a Business Entity
- What are Business Entities?
- What is a Closely-held vs Publicly-held Business?
What are the main types of business entity?
- What are the primary characteristics of business entities?
- What is Creation of a business entity?
- Where to Form a Business
- Incorporating in Delaware
- Forming an LLC in Nevada or Wyoming
- Creating a Company Offshore
- Promoter Liability
- De Jure Corporation
- Ultra Vires
- Brassplate Company
- What is Maintenance of a business entity?
- What is Continuity of a business entity?
- Business Continuity Planning
- Buy Sell Agreements
- Shotgun Clause
- Winding Up
- Dissolving a Foreign Qualification
- What is the Ownership structure of a business entity?
- Joint Stock Company
- Parent Company
- Subsidiary Company
- Wholly-Owned Subsidiary
- State-Owned Enterprise
- Mutual Company
- What is Control of a business entity?
- What is Personal liability of owners of a business entity?
- Entity Theory
- Piercing the Corporate Veil
- What is Compensation of business owners?
- What is Taxation of a business entity?
- What is Sales & Use tax?
- What are payroll and self-employment taxes?
- What are the major characteristics of a Sole proprietorship?
- Uniform Partnership Act
- Uniform Limited Partnership Act
- Partnership Agreement
- At-Will Partnerships
- Responsibilities of Partners to the Partnership
- Silent Partner
- Funding the Partnership
- How are Partners Compensated
- Splitting Equity in an Industrial Partnership
- Terminating the Partnership
- Types of Partnerships
- What are the main characteristics of a General partnership?
- Tort Liability of General Partner
- What are the main characteristics of a Joint venture?
- What are the main characteristics of a Limited partnership?
- Family Limited Partnership
- Master Limited Partnership
- What are the main characteristics of a Limited liability partnership?
- What are the main characteristics of a Limited liability company?
- Forming an LLC
- Articles of Organization
- Operating Agreement or LLC Agreement
- Why You Need an LLC Agreement
- LLC Compensation of Members
- LLC Taxation
- Converting to an LLC
- What are the main characteristics of a Corporation
- Articles of Incorporation
- What to include in the Articles of Incorporation
- Corporate Bylaws
- Exiting the Corporation
- Dissenter's Rights
- What are the requirements to be an S Corporation?
- Non-Profit Organization
- NonProfit Business Entities
- Private Foundation
- A Detailed Explanation of the Sole Proprietorship
- Taxation of Sole Proprietorship
- A Detailed Explanation of the General Partnership
- 50/50 Partnerships: Never a Good Idea
- Publicly-Traded Partnerships
- A Detailed Explanation of the Limited Liability Company
- A Detailed Explanation of the Corporation
- Keepwell Agreement (Letter of Comfort)
- Personal Service Corporation Definition
- A Detailed Explanation of the Non-Profit Entity
- Public Limited Company (UK)