An intercompany loan is a transaction between two separate legal entities, even when the same people own and manage both. Each company should approve the transaction from its own perspective and sign or authorize the same loan agreement.
The resolution should make the commercial purpose, amount, interest, repayment, security and authority clear. A one-line transfer between related companies is not a substitute for two board records and a reconciled intercompany account.
- Approved by
- The directors of the lending company and the borrowing company
- Signed by
- The authorized signers for each corporation
- Core document
- Intercompany loan agreement or promissory note
- Main risks
- Conflicts, solvency, tax characterization, interest and incomplete accounting records
- Filed with the government
- Usually no standalone filing; tax, security and annual-report obligations may apply
When you need one
- A holding company lends cash to an operating company or subsidiary.
- An operating company temporarily funds payroll, inventory or expenses for a related entity.
- Two corporations share cash management or need to document an existing balance.
- A group is converting an informal intercompany balance into a formal loan.
- A related corporation guarantees, secures or repays another company’s borrowing.
Who approves it
There are two corporate decisions, not one: the lender approves advancing money and the borrower approves receiving and using it. Directors who sit on both boards should disclose the relationship and ensure that the transaction is authorized and fair for each corporation.
| Jurisdiction | Rule |
|---|---|
| Canada, federal (CBCA) | Each board manages its own corporation and should approve the loan under its corporate authority. An interested director discloses the interest and follows the conflict rules before voting or signing. |
| Ontario (OBCA) | Each corporation’s directors approve its side of the transaction. An interested director must disclose the interest and comply with the voting and shareholder-approval rules for a conflict transaction. |
| British Columbia (BCBCA) | Each board authorizes the transaction, with disclosure and treatment of director interests under the Act. The agreement should show the separate benefit and obligations of each company. |
| Alberta (ABCA) | Each corporation approves its own loan or borrowing and records any director or shareholder disclosure required by the Act. |
| Quebec (QBCA) | The board of each corporation approves the transaction and applies the Act’s conflict rules; shareholder approval may be needed when every director is interested. |
| Delaware (DGCL) | Each board approves its corporation’s side. Loans to officers or employees and interested-director transactions must satisfy the applicable corporate-benefit, disclosure, approval or fairness rules. |
| Model Act states (MBCA) | Each corporation records approval under its own conflict-of-interest and corporate-authority rules, with disclosure and qualified approval where required. |
Before you sign
- Prepare two approvals. The lender and borrower should each have a separate resolution, even if the same directors sign both.
- Set commercial terms. Record amount, purpose, interest, repayment schedule, maturity, security, currency and default terms.
- Check solvency and corporate benefit. Each board should consider why the transaction helps its own corporation and whether it can meet its obligations.
- Address conflicts. Disclose common directors, shareholders or officers and follow the applicable abstention, shareholder-approval or fairness rule.
- Ask for tax advice. Related-party interest, debt forgiveness, thin capitalization, transfer pricing and shareholder-loan rules may apply.
Two companies means two minute-book records
- The lending company’s resolution authorizes the advance and protects its right to repayment.
- The borrowing company’s resolution authorizes the debt and confirms the purpose and terms.
- The agreement and accounting entries must match both resolutions, the bank transfers and the year-end confirmations.
- If the loan is secured, keep the security document and any registration confirmation with the file.
Sample wording
Adapt the wording to your corporation: replace everything in square brackets, and check your articles, bylaws and any shareholder agreement first. Each person signs and dates a copy, and a scanned or electronic signature is usually fine.
Resolutions of the directors of [Corporation name] (the “Corporation”)
WHEREAS [Borrower Corporation] is a corporation related to the Corporation, and the Corporation proposes to lend it $[amount] for [business purpose];
BE IT RESOLVED THAT the Corporation lend $[amount] to [Borrower Corporation] on the terms set out in the intercompany loan agreement presented to the directors: interest at [rate]%, repayment [terms], maturity [date] and security [description, if any];
2. The loan is approved as a transaction that the directors consider to be in the Corporation’s best interests, after disclosure of the relationship between the entities.
3. [Name and title] is authorized to sign the agreement, advance the funds and take any steps needed to protect the Corporation’s rights.
The foregoing resolutions are passed by the signatures of all the directors of the Corporation, as of [date].
______________________________
[Name], director
______________________________
[Name], director
Resolutions of the directors of [Corporation name] (the “Corporation”)
WHEREAS the Corporation requires $[amount] for [business purpose] and [Lender Corporation] has offered the amount on the terms set out in the intercompany loan agreement presented to the directors;
BE IT RESOLVED THAT the Corporation borrow $[amount] from [Lender Corporation] at interest of [rate]%, repayable [terms] and secured by [description, if any];
2. The borrowing is approved as a transaction that the directors consider to be in the Corporation’s best interests, after disclosure of the relationship between the entities.
3. [Name and title] is authorized to sign the agreement, receive the funds and take any steps needed to carry out the borrowing.
The foregoing resolutions are passed by the signatures of all the directors of the Corporation, as of [date].
______________________________
[Name], director
______________________________
[Name], director
Use one signed resolution in each company’s minute book. Have counsel or the accountant confirm conflict, tax and security requirements.
Action by unanimous written consent of the board of directors of [Corporation name] (the “Corporation”)
WHEREAS [Lender Corporation] and [Borrower Corporation] are related corporations, and the proposed loan will support [business purpose];
RESOLVED, that the Corporation’s [lending / borrowing] of $[amount] under the intercompany loan agreement dated [date], bearing interest at [rate]% and repayable on [terms], is approved;
RESOLVED FURTHER, that the directors have considered the relationship between the entities and determined that the transaction is authorized and in the Corporation’s best interests; and
RESOLVED FURTHER, that [name and title] is authorized to sign the agreement, transfer or receive the funds and execute related documents.
This consent is signed by all the directors of the Corporation, is effective as of [date], and will be filed with the minutes of the proceedings of the board.
______________________________
[Name], director
______________________________
[Name], director
Prepare a separate resolution for the other corporation. If the same person signs for both, keep the two approvals and signing capacities clear.
After you sign
- Sign the intercompany loan agreement or promissory note and transfer the funds through traceable bank accounts.
- Record the receivable in the lender’s books and the payable in the borrower’s books using matching terms and balances.
- Make interest and principal payments on schedule and confirm the balance at each year-end.
- Update security registrations, guarantees, tax schedules and financial-statement disclosures where required.
What to keep in your minute book
- The separate signed resolutions from the lender and borrower.
- The intercompany loan agreement, promissory note and security documents.
- Bank-transfer records, interest calculations and payment confirmations.
- Year-end balance confirmations, accounting entries and tax advice.
Common questions
Can one resolution approve an intercompany loan for both companies?
No. Each corporation is a separate legal entity and should approve its own side with its own records. The same person may sign both, but the capacities and minute books must remain separate.
Do intercompany loans need interest?
Not always, but interest-free or below-market related-party loans can create tax, accounting and transfer-pricing issues. Set terms that make commercial sense and ask a qualified adviser about the applicable rules.
What if the same directors sit on both boards?
Disclose the relationship in each corporation’s record and follow the applicable conflict and corporate-benefit rules. If the transaction is material, consider independent advice, shareholder approval or additional fairness documentation.
This page is general information about corporate resolutions in the United States and Canada, not legal or tax advice. The sample wording is a starting point: your articles, bylaws and any shareholder agreement may require something different, and rules change over time. For advice about your corporation, speak with a qualified lawyer or accountant.
Sources
- Canada Business Corporations Act, sections 102, 115 and 120
- Ontario Business Corporations Act, sections 115 and 132
- British Columbia Business Corporations Act, sections 136 and 147 to 149
- Alberta Business Corporations Act, sections 101, 120 and 121
- Quebec Business Corporations Act, sections 112, 122 and 129
- Delaware General Corporation Law, sections 143 and 144
- Model Business Corporation Act (American Bar Association), sections 8.01 and 8.60 to 8.63
- Income Tax Act (Canada), section 15
- Income Tax Act (Canada), section 247
- 26 U.S. Code § 482, allocation of income and deductions