CounselO Legal and Legal Settlement of Financial Balances
This matter concerns the legal settlement of financial balances between related companies. It explains that settlement cannot be effected through accounting entries alone; it must have a clear legal basis that preserves each company’s separate legal personality and rights. The proposed secure mechanism is for each company to issue an independent resolution, followed by a joint settlement agreement addressing the balances, set-off, payment, release if applicable, and the accounting, Zakat, and tax implications. The conclusion is that every accounting treatment must be supported by a documented resolution and legal agreement.
Content updated: 2026-09-28
Work sample date
August 2026
Jurisdiction
Saudi Arabia
Work type
Contracts – Financial Settlement – Set-Off
Document language
Arabic
Client type
Large Corporate Group
The matter
Issue:
There were reciprocal financial balances among several related companies, arising from current accounts, transactions, payments, financing, and prior services. These balances needed to be settled before the close of the financial year in a manner that was clear to financial management and the auditor.
Challenge:
Although the companies were related through ownership or management, each had a separate legal personality and financial liability. Accordingly, it was insufficient merely to write off the balances or record accounting entries. A valid legal basis was required, including independent resolutions from each company and a documented settlement agreement preserving the parties’ rights and regulating set-off, payment, or release, if applicable.
Work performed
We examined the settlement of reciprocal financial balances among related companies and explained that the settlement should not consist merely of accounting entries or a write-off, but should be based on a clear legal foundation.
The work included:
- Analysing the legal position of the related companies, recognising that each company has a separate legal personality and financial liability.
- Distinguishing accounting treatment from the legal disposition of a debt, such as set-off, payment, release, or reclassification.
- Proposing a legal implementation mechanism based on an independent resolution from each company.
- Developing a framework for a joint settlement agreement among the companies to regulate the balances, set-off, payment, and release, if applicable.
- Identifying the required documents, including the final settlement schedule, set-off minutes, and implementation documents.
- Taking the auditor’s role into account while confirming that it does not replace the required legal resolutions and approvals.
- Structuring the contracts required to document the settlement and ensure that each accounting entry has a valid legal basis.
Conclusion:
The work aimed to transform the settlement of financial balances among related companies from a purely accounting procedure into a documented and organised legal process that protects each company’s rights and supports its position before financial management, the auditor, and relevant parties.
Outcome or value delivered
The value delivered was transforming the matter from a mere accounting settlement of balances into an organised and documented legal treatment that reduced risks and preserved each company’s rights.
The value included:
- Protecting each company’s independence and avoiding treatment of the related companies as a single financial entity.
- Providing a legal basis for each accounting entry so that the settlement was not merely a write-off or book entry.
- Reducing the risk of objections by the auditor or regulatory authorities through clear resolutions and agreements.
- Organising set-off, payment, and release in a manner distinguishing each transaction and its legal effects.
- Protecting the rights of creditors and companies against any undocumented or unauthorised waiver or release.
- Preparing a clear implementation framework comprising independent resolutions, a settlement agreement, balance schedules, and set-off minutes.
In brief:
The value delivered was a secure legal pathway for settling balances among related companies, ensuring that the financial treatment was supported by clear, reviewable legal approvals and documents.
What connects an accounting balance to a proposed intercompany settlement?
Prepare a company-by-company schedule showing the source of each balance, approvals and proposed discharge. Keep the accounting entry separate from the signed instrument that is intended to change the companies’ rights.
This sample demonstrates professional experience only. Details may be modified or withheld to protect confidentiality, and past work or outcomes do not guarantee the result of another matter.