A shared services agreement is a legal agreement between a parent company and its subsidiary wherein the parent company provides certain services to the subsidiary and charges an appropriate fee for the services rendered. The purpose of such an agreement is to streamline the services provided, avoid duplication of efforts, and reduce costs. In this article, we will discuss the key aspects of a shared services agreement between a parent and subsidiary.
Identification of Services
The first step in drafting a shared services agreement is to identify the services that the parent company will provide to its subsidiary. These services may include financial and accounting services, human resources services, information technology services, procurement services, and other support services. It is important to clearly define the scope of the services to avoid any ambiguity or confusion in the future.
Pricing and Payment
The next aspect to consider is the pricing and payment mechanism. The pricing should be based on a reasonable market rate for the services provided. The agreement should clearly state the payment terms, including the payment schedule, the payment method, and the consequences of non-payment. The payment mechanism should also take into account any fluctuations in the pricing that may occur due to market conditions or changes in the services provided.
The agreement should establish performance standards for the services provided. These standards should be measurable and agreed upon by both parties. The standards should cover the quality, quantity, timeliness, and accuracy of the services provided. The agreement should also provide for a mechanism to resolve any disputes that may arise due to non-compliance with the performance standards.
Confidentiality and Security
The agreement should include provisions for maintaining the confidentiality and security of the data and information shared between the parent and subsidiary. This includes protecting sensitive information such as financial data, trade secrets, and other proprietary information. The agreement should also provide for measures to prevent unauthorized access, use, or disclosure of the information shared.
Termination and Renewal
The agreement should specify the conditions for termination and renewal. The termination clause should cover situations such as a breach of the agreement, non-payment, or non-performance of services. The renewal clause should indicate the duration of the agreement and the conditions for renewing the agreement.
In conclusion, a shared services agreement between a parent and subsidiary is a useful tool for streamlining operations and reducing costs. It is important to identify the services, establish pricing and payment mechanisms, define performance standards, ensure confidentiality and security, and specify the conditions for termination and renewal. By following these key aspects, both parties can benefit from the shared services agreement and ensure a successful and mutually beneficial partnership.