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This article is written by Aakriti Bansal pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho


Business transfers fall under the purview of mergers and acquisitions transactions. It is a general notion that acquirers are more inclined towards asset purchase than any other mode as it gives them the option of acquiring whatever assets they would like, however, the sellers don’t prefer this, thus a midway has recently gained popularity which is either “business transfer” or “slump sale” as the new modes of acquisitions. This article seeks to explore these concepts and to analyze in-depth the important clauses of a business transfer agreement. We live in a globalized world and with the government trying to introduce ease of doing business principles, business development is constantly on the rise and thus it is imperative to study these concepts in detail as these attract tax implications also.

What are known as business transfer and slump sale? 

The term business is defined under Section 2(17) of the Goods and Services Tax Act, 2017, which includes a wide range of activities falling under its purviews like trade, commerce, manufacture, profession, vocation, adventure, wager, supply, and acquisition of capital goods, services supplies and other ancillary and incidental activities, out of which some benefit generally pecuniary in nature is derived. 

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In the Indian context, the terms “slump sale” and “business transfer” usually refer to the same concepts. ‘Slump sale’ is purely a tax concept and the Income Tax Act, 1961 (ITA) defines a slump sale under Section 2 (42C). It implies the transfer of an entire undertaking on a continuous process basis at a lump sum monetary consideration by the interested acquirer of the business. Slump sale is the process of selling or transferring, one or more business undertakings, in consideration of a fixed lump sum value, in which along with the business, the assets and the liabilities of such a business undertaking are also transferred to the buyer which is acquiring the same, without individual evaluation of each asset. The definition of slump sale under ITA makes it clear that transfer by way of sale is what would constitute a slump sale and not transfer by any other mode.

The biggest advantage to a business choosing this method of business transfer is that the tax liability is reduced as there is a whole evaluation of the assets being transferred instead of individual evaluation. 

What is a business transfer agreement?

The business transfer agreement is a legal document in which interested parties, one willing to acquire the said business and the other willing to sell the said business, enter into to govern their relationship, engagement, and liabilities. It is a document that is given structure in a way as to give effect to a comprehensive and extensive sale of assets and liabilities which would flow from one entity to another. It is basically a form of purchase of ownership of a business in consideration and thereby transfers of its assets and liabilities incidental thereto from the seller to the purchaser. Appropriate and clear details relating to the sale of business, its assets, and liabilities are to be mentioned in the agreement, to give the party acquiring the same a definitive condition of the business. The focus area of such an area is the type of transfer, type of sale, tax liability, terms of sale, representation of parties, list of assets, liabilities, capitals, loans, contracts, customers, employees, insurances, intellectual property and related matters are necessarily mentioned. Since corporate governance is a complex field and involves tax liabilities also, it is extremely essential to structure the business transfer agreement comprehensively. 

Mode of execution of a business transfer agreement 

A business transfer agreement in order to be executed has to go through the following:

  • Agreement to sell

This basically lists out to the intention of the parties to enter into a business transfer agreement by way of sale, but it doesn’t actually affect the transfer yet, as there is no immediate transfer, it only provides for the procedure of such transfer, if it comes into effect. 

  • Deed of conveyance

It is through a deed conveyance that the agreement to sell is executed in actuality and through it, there is actual sale or transfer of the assets and liabilities to the purchaser, and the agreement to sell comes into force thereafter. 

Essential clauses in a business transfer agreement and their implications 

For the purpose of giving effect to a sale or transfer of a business via the slump sale method, a business transfer agreement has to be drafted and entered into between the interested parties, and then the same shall be executed accordingly. The entire business undertaking which is the subject of transfer shall be transferred on a “going concern basis”, which means the business shall be transferred in a running condition. 

Having regard to the above, let us look at some important clauses in a business transfer agreement. 

  • Parties to the agreement 

This clause basically defines who the parties are who are entering into the said agreement and incorporates their correspondence details clearly so as to identify them. It is important to look into aspects of residency when it comes to business because a non-resident is not allowed to conduct business in India without having a functional place of business in the territory of India. Therefore, for a non-resident business to give effect to such a business has to establish a place of business in India and comply with the provisions of the Companies Act, 2013 for the same.

  • Recitals clause

The recitals clause is essential for anyone reading the agreement to get a general background of the circumstances under which the parties are entering into the agreement. It is not an operative clause, but rather a substantive clause, giving an idea about the present stand of the parties, which might be useful for the interpretation of the agreement as a whole or some clauses in the agreement. It also highlights the intention of the parties entering into the agreement. 

A sample clause can be:


  1. Seller is engaged in the business of [●] (“undertaking”), and has a place of business at [●].
  2. Purchaser is engaged in the business of [●], and has a place of business at [●].
  3. The seller desires to sell and the purchaser desires to purchase the undertaking, as a going concern on a slump sale basis (as defined under Section 2(42C) of the Income Tax Act, 1961), i.e. for a lump sum consideration without assigning individual values to assets and liabilities, upon the terms and conditions set forth herein with effect from the [●].”
  • Transfer and description of transfer

This is one of the main operative clauses in the agreement wherein the process and procedure of transfer are explained. This is the clause that actually defines the nature of the transaction between the parties and lists out how it is to take place. It is necessary that this clause is drafted precisely and defines the mode of transfer and the liabilities attached thereto, without leaving any scope for ambiguity. It is important to list out all the assets and liabilities under this clause. A separate schedule can also be attached for the same, which clearly should list out all the details of the assets and liabilities and any encumbrances on the former. One possible way of drafting this clause could be:

“In consideration of and subject to the fulfilment of the terms and conditions of this agreement, the seller shall, on the closing date, irrevocably and unconditionally transfer, grant, sell, convey, assign and deliver, as a going concern, to the buyer, [free and clear of all encumbrances] and the buyer shall accept, purchase and acquire, as a going concern, from the seller, all of the seller’s rights and interests in and title to the business and all the assets and liabilities thereto, including everything as listed out in Schedule A of this agreement”.

  • Specific requirement 

Some specific requirements related to the assignment of contract and assumption of liabilities should be incorporated under the agreement. This can be covered under the transfer clause also, however, if not covered there it can be covered under a specific clause thereafter. These could be drafted in the following manner:

  1. Assumption of liabilities

Notwithstanding anything to the contrary contained in this agreement, on the terms and subject to the conditions set forth in this agreement, at closing, the purchaser shall assume all the liabilities of the seller in relation to the undertaking (the “assumed liabilities”) as listed out in Schedule A, whether pertaining to the period prior to the effective date or thereafter including but not limited to:

  1. Any accounts payable and any liabilities under the assumed contracts, permits and leased real estate; and
  2. All liabilities for taxes relating to the assets and the undertaking for all taxable periods (or portions thereof) whether prior to or after the effective date.
  1. Assignment of contracts
  1. Subject to this clause, the assumed contract shall be assigned/novated/transferred to the purchaser by a mutually agreed deed of novation/assignment from the effective date.
  • Purchase consideration 

Generally, most disputes in contractual relations arise due to discrepancies regarding the payment, consideration amount, or the payment terms, thus it is crucial to draft the consideration clause with extreme diligence, to specify how the payment is to be done and received by the parties. Further, it should also state the consequences of delayed payment or non-payment. This clause is supposed to define the nature, amount, currency, and mode of payment that will be adopted by the purchaser. This clause could look like:

“The consideration for the irrevocable and unconditional transfer, grant, sale, conveyance, assignment and delivery of the Business on a going concern basis, on the terms and conditions of this agreement, shall be a one-time lump sum of Rs [∙] (Rupees in words), hereinafter the ‘purchase consideration’, which shall be paid by way of a bank transfer from the purchaser’s merchant to the seller’s bank through National Electronic Funds Transfer(NEFT). The buyer shall pay to the seller the purchase consideration on a slump sale basis. The purchase consideration shall be paid and discharged [on the closing date] in accordance with this agreement.”

  • Representation and warranties of the parties 

This is an essential clause which states that only upon certain representations made by both the parties, they have agreed to enter into the agreement and if any party is found in breach of any of the representation, the agreement could be subject to termination. Warranties are something which is sort of an affirmation made by the parties to ensure to do certain things and guarantees made by them in relation to their representations. In a business transfer agreement, the seller makes promises to the buyer in relation to the assets and liabilities and the buyer ensures that he has the legal capacity to buy them. Further, a seller is supposed to undertake that he is permitted to sell the business according to the laws of India. This clause is an embargo to the protection of future rights of the parties. 

  • Intellectual property with respect to brand usage 

Intellectual property can be considered as the creations of the mind, such as inventions, literary and artistic works, designs and symbols, names, and images used in commerce. In the course of a business, a business may create intellectual property like its own brand name, symbol, designs, or other related products which qualify as intellectual property. Intellectual property is protected by law, for example, the patents, copyright, and trademarks, which enable people to earn money, having an exclusive right over it. Thus, it is essential to list out how the intellectual property will be affected by way of transfer of the business to the other party. A sample clause could be: 

The parties hereby agree that from the effective date:

  1. The seller shall use the intellectual property with respect to the [●] division only including but not limited to all rights, title and interest in the proprietary rights in relation to the online portal “[●]” and in relation to the brand name ‘[●]’ as used with respect to the [●] division only, and nowhere else which will likely conflict with the undertaking.
  2. The purchaser shall use the intellectual property with respect to the undertaking only including but not limited to all rights, title, and interest in the proprietary rights in relation to to the brand name ‘[●]’ as used with respect to the undertaking only, and nowhere else which will likely conflict with the service division.”
  • Conditions precedent and conditions subsequent

These clauses are extremely essential when it comes to a business transfer, as it lays down and clearly defines the conditions which are to be fulfilled by the parties before affecting the transfer of business under the agreement and after affecting transfer under the agreement as business are complex entities and a lot of their processes require legal compliance and also fulfillment of tax liabilities, therefore it is necessary to draft these clauses with utmost diligence. The conditions precedent and subsequent should be specific and not generic in nature. Further, additional conditions precedent and subsequent may have to be added on the basis of the outcome of the due diligence exercise, and in compliance with the laws.

  • Tax cooperation and allocation of taxes 

Since tax is one of the major aspects which has to be regulated and looked into when undertaking a business transfer, it is essential to draft a clause in this respect specifying each party’s obligations with respect to tax liability. An example of this clause is:

  1. Exchange of information: Each party shall furnish or cause to be furnished to the other party, upon request, as promptly as practicable, such information and assistance relating to the business as is reasonably necessary for the filing of all tax returns, and the making of any decision in relation to taxes, the preparation for any audit by any tax authority, and the prosecution or defence of any claim, suit or proceeding relating to any tax return. Each party shall cooperate with the other party in the conduct of any audit or other proceeding relating to the taxes involving the business.
  2. Responsibility of seller: The seller is responsible for and shall indemnify the buyer against all taxes arising by reason of or attributable to the business or its operations, activities, and transactions prior to the closing date without regard to the actual time of payments, filing or assessments thereof except to the extent as expressly provided for in the audited closing accounts. 
  • Employees 

When the business is being transferred, it is important to lay down how the existing employees will be transferred and the procedures and details in this respect as this information are necessary for third parties like the employees to know of their rights and obligations when the business is taken over. It is also important to furnish the record of all the employees to the purchaser. 

  • Confidentiality 

Confidentiality is the most essential feature when it comes to any business transactions and especially business transfer, wherein two or more parties are engaged and the exchange of such information happens that in case of leak of this information in the open market, it may have detrimental effects to the business of the party whose information is leaked. Thus, confidentiality clauses are the most essential clauses to guard the interest of the parties and to keep their information protected. And under the business transfer agreement, along with the business, all the confidential information is also transferred thereby. In such a transfer it is important to protect the confidentiality of the information and this clause shall specify the same.

  • Indemnification 

Indemnification means security against legal liability for other’s actions. The concept of Indemnity is embodied u/s 124 of the Indian Contract Act, 1872 which states that “a contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person is called a contract of indemnity”. In a business transfer, it may be possible that the business brings along with it liabilities on assets and in the form of loans and other encumbrances. On transfer of business, the purchaser may be subjected to these liabilities, which he may not have known, thus an indemnity clause safeguards the interest of the purchaser in such circumstances and resolves to avoid future disputes in this regard. All possible situations of indemnity should be foreseen and incorporated under this clause. An example of this clause is:

  1. Seller’s indemnity: The seller shall be liable to indemnify, defend and hold harmless and shall keep indemnified, the buyer from and against any and all damages, penalties, costs, and expenses (including reasonable attorney’s fees and expenses) (collectively “damages”), incurred by the buyer resulting from claims, actions, demands, or assessments, [directly] by reason of any breach of any [seller’s warranties] or covenant of the seller contained in this agreement or any ancillary agreements.
  2. Purchasers indemnity: The purchaser hereby agrees to indemnify and hold the seller and its affiliates, directors, officers, employees, shareholders, members, partners, agents, attorneys, representatives, successors and assigns (collectively, the “seller indemnified parties”) harmless from and against, and pay to the applicable seller indemnified parties the amount of, any and all losses based upon, attributable to, arising out of, or in connection with, or resulting from (i) the undertaking or the assets or employees , taxes  relating to any period prior to or after the effective date; and/or (ii) breach or failure of the representations or warranties made by the purchaser in this agreement; and/or (iii) breach of any covenant on the part of the purchaser under this agreement; and/or (iv) transactions contemplated under this agreement including but not limited to any tax liability arising pursuant to this agreement, usage of the name of the seller in any manner in relation to the undertaking after the effective date.
  • Term and termination 

The term specifies the duration for which the agreement shall be in force and stand valid. The ‘termination clause’ is an important clause found in any form of legal agreement that allows for the agreement to be ended or terminated, under circumstances specified or breach of duties. The termination clause is typically placed along with the terms and conditions of the agreement and it is essential to draft the consequences of termination also.

  • Dispute resolution 

This is an essential clause, as it defines that in case of any dispute arising in respect of the agreement, how the dispute would be settled and how the cost will be divided among the parties. Most parties prefer mediation or arbitration as a faster method to settle disputes. This clause is essential because imagine a situation, wherein a dispute with respect to the agreement has arisen, and in absence of this clause, one party wants to settle the dispute via mediation and the others via arbitration, then this will give rise to another dispute, thus making it a tedious, time and resource-consuming process for all the parties. If the parties choose for arbitration, it is essential to specify the seat and place of arbitration and the process of appointment of the arbitrator and his fees and who will be liable to pay the same. 

  • Governing law and jurisdiction 

This clause specifies under what laws will the agreement and any matter incidental thereto be governed by and where does the jurisdiction of the dispute lie. This becomes essential especially in cases of international entities. 


Under the Indian laws, there are a variety of options and methods available to businesses for restructuring, like mergers, acquisitions, share transfer, however, these processes are way more tedious than executing a business transfer agreement, thus more and more reliance has come to be made on such agreements. While entering into such agreements, affecting the rights and liabilities of the parties, it becomes compelling to draft each clause with diligence as enumerated in the above sections. 

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