A tolling agreement is a contract between two parties that allows one party to process raw materials or products on behalf of the other party. This type of agreement is commonly used in the energy and manufacturing industries, where a company may lack the necessary infrastructure or expertise to process its own materials. By entering into a tolling agreement, the company can outsource this aspect of the business to another party, who will provide the necessary facilities and expertise to process the materials effectively.
Under a tolling agreement, the owner of the raw materials or products retains ownership throughout the process. The party responsible for processing the materials, known as the toller, receives compensation in the form of a tolling fee. This fee is typically a per-unit charge based on the final product output. The toller may also be responsible for acquiring any necessary materials or supplies, which can be factored into the tolling fee.
There are several benefits to entering into a tolling agreement. For the owner of the raw materials or products, it allows for more efficient and cost-effective processing without the need for major infrastructure investments. The toller, on the other hand, can benefit from accessing new customers or markets through the agreement.
However, there are also potential risks to consider. The owner of the raw materials or products may be reliant on the toller for production and could suffer financial losses or delays if the toller experiences issues or delays. Additionally, both parties must ensure that the agreement is properly structured to ensure compliance with regulatory requirements and protect against any potential legal disputes.
Overall, a tolling agreement can be a valuable tool for businesses looking to streamline production or expand into new markets. However, it is important to carefully consider the potential risks and benefits before entering into such an agreement. Working with a reputable toller and seeking legal advice can help ensure that the agreement is properly structured and protects the interests of both parties.