Business Transfer Agreement

Introduction

Re-organizing the business whether financial, technological, organizational by way of merger, amalgamation, arrangement, compromise, demerger, acquisition, takeover, strategic alliance or slump sale is a complicated and a lengthy process.

Business Transfer Agreement is an agreement executed by and amongst the transferor and the transferee company to by way of executing a slump sale where every asset and the liability of one or more units transferred, sold, leased or assigned to any other for the lump sum consideration. This type of agreement provides ownership of other businesses.

As per section 2(42C) of Income -tax Act 1961, ‘slump sale’ means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

Purpose behind restructuring of business through Slump Sale is as follows:-

  • Growth & betterment of the business
  • Reaching out to the better profits.
  • Reorganizing through slump sale attracts stamp duty only on immovable properties.
  • The transferor has to pay a certain amount of capital gain arising from such transfer.
  • The value of business increases because of the assets and liabilities being acquired.

Legal Window has a team of experts providing you with the best assistance, timely delivery and guaranteeing the highest customer satisfaction with respect to legal drafting of business transfer agreements. You may get in touch with our team on 072407-51000 or email admin@legalwindow.in

Importance of Business Transfer Agreements

It helps in improving the business performance post-integration.

It helps in improving the focus on core areas and also helps in optimizing operational synergies.


It helps in facilitating the strategic investments.

It helps in availing of tax and the regulatory advantages associated with the business.

Elements Which Requires Deep Understanding Before Executing Business Transfer Agreement

Sale of any part of the undertaking

Transferring the undertaking on a going concern basis

Payment for such transfer should be in lump sum consideration

Transfer assets & liabilities of that undertaking which will be transferred

Process of Drafting of Business Transfer Agreement

1. Placing request
As when we receives from you request for drafting of a Business Transfer Agreement, our expert team will share a questionnaire to be filed by you for taking your request forward.

2. Drafting of Agreement
After receiving the said questionnaire and the information relevant for drafting of the agreement we will begin to draft the same and if in need we require any other information the same will be sought by us through a call. The drafting of the agreement might take 2-4 business days.

3. Sharing of Ist draft
Once the agreement is ready from our side we will share a draft of the same with you for final approval. If you find the same in order the final copy will be shared in a day and if corrections or additions are required then the same will be revised and verified by our team.

4. Sharing of Final Agreement
Our experts will do the needful and the same will be shared with you as final agreement


Modes of Execution of Business Transfer Agreement

There are two modes available in which Business Transfer Agreement can be formed which are mentioned below:

  1. Agreement to sell: It is only the way in which respective business undertaking is to be sold shall be laid down. The agreement executed itself does not result in  transfer of the undertaking on immediate basis, rather it is an underlying agreement whereby the intent of parties is laid down giving effect to an intended slump sale and the actual sale is carried out by diverse agreements/documents. Therefore, it only remains as an indication of the intention, effectuated by the subsequent binding documents.

  2. Deed of conveyance: It is the agreement or the Deed which leads to the sale of the business undertaking and the payment of consideration received for the undertaking. In this type of document, parties agrees to transfer the said undertaking and actually effects the transfer of undertaking.

Contents of Business Transfer Agreement

Following contents shall be mandatorily required to be covered under the Business transfer agreement:-

Schedule of the Assets

Schedule of the Liabilities

Detail of the creditors

List of the contracts

List of the employees

Lump-sum consideration involved

Details of the total intellectual property

Name of the parties

Address of the parties

Pending suits and cases under authority, if any

Closing date

any other clauses may be deemed fit.

Sample of Business Transfer Agreement 

FAQ's on Business Transfer Agreement

What do you mean by Transferor and Transferee?

Transferor is the person/party who is making a transfer of business or his/her property to another party as part of a legal arrangement and that another party is transferee.

Does Agreement to sale means transfer of undertaking?

No, Agreement to sell doesn’t mean the transfer of undertaking, it is merely an instrument where the intention of parties is laid down and parties mutually decide to reach a certain decision of purchase or sale of undertaking.

On what points the Business transfer agreement should provide clarity?

There are three points on which Business Transfer Agreement should focus i.e.

  • what and which assets are being transferred;
  • what is the consideration involved; and
  • how the same will be paid.
 What do you mean by slump sale?

Transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

What are legal and stamp duty implications?

Business Transfer Agreement becomes legally binding when it is printed on judicial stamp paper or an e-stamp paper which is to be signed by both the Transferor(Vendor) and the Transferee(Purchaser), and has been dated. The value of the stamp paper depends state to state in which it will be executed. Each state in India has different provisions in respect of the amount of stamp duty to be paid.

 What do you mean by slump sale?

Transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.