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This article is written by Advocate Shamika Vaidya pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Here she has discussed Share purchase shareholder agreements and business transfer agreements.


To get a clear picture on SPSHA and BTA, let me give you a simple example.

First, imagine that A is selling his house to B. Second, that A is going to share the house with B as housemates and both own 50% interest in the property each as co-owners.

In both these instances, B will be paying some consideration to A as agreed between them.

In the first instance, the transaction is more like a give and take, something is sold for some consideration and the relationship ends there. Once A has sold the house and received his money, he has no further interest, business or say in what B does with the house.
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However, in the second case, both the parties will be sharing the house, and the relationship has to be taken forward. A may want to change the color of the wall, and B may disagree. B may want to throw a party on the terrace every Friday, and A may be allergic to that.

Whose opinion will prevail?

What if one of them wants to sell their stake and the other prevents them from selling? What if one sells it to an undesirable entity like the local goon who wants to do illegal activities in the house?

Obviously selling a limited interest in something is not as straightforward as an outright sale.

BTA is an outright sale of a business unit whereas selling shares to someone is akin to giving them the interest in a part of the company. Naturally, the agreements are of a very different nature, because the commercial interests sought to be protected are also completely different.

Commercial intent of BTAs

  • Business Transfer Agreement is entered between two parties when a business or undertaking along with all assets and liabilities has to be transferred to the other party, the transaction is known as a slump sale.
  • A slump sale is carried out by a company as a part of their business structuring.

It can be either carried out between a company and its subsidiary or with a third party. Furthermore, it is either structured as conveyancing document or as an agreement to sell.

  • That said, if it is structured as an agreement to sell, it includes all the details regarding amount and manner of payment of consideration and further course of action and transfer but does not in itself amount to transfer.
  • In M/s. Oricon Enterprises Limited Vs ACIT (ITAT Mumbai), the consideration for the slump sale was in the form of the shares. It was held by the appellate body that if the consideration for a slump sale is not in the form of cash but shares than it cannot be termed as a sale but an exchange.
  • The following can be transferred in a slump Sale;

1) Assets like machinery, land, equipment, inventory, capital, and plant

2) Liabilities like due employee salaries, gratuities, and loans

3) Clients and customer list

4) Suppliers

5) Employees

6) Intellectual Rights like Patents, copyrights, and trademarks

  • On the other hand, some assets can be excluded from transferring and can be referred to as ‘excluded assets’ in the agreement. Transfer of assets without transfer of liabilities is not a slump sale.
  • The consideration paid is for the business as a whole and not by adding up individual assets. The consideration paid is in one go and not in installments.
  • Notably, the buyer has no liberty to cherry-pick the assets and liabilities.

Commercial intent of SPSHA

Share Purchase Agreement

  • Share Purchase Agreement is entered between the parties when one company wants to transfer their shares to the other company/individual. Share Purchase Agreement is a conveyancing document.

Shareholders Agreement

  • Shareholders Agreement defines the relationship between the shareholders and the company and inter se the shareholders. It mentions the different rights and obligations of the shareholders and is therefore instrumental in securing the interests of the shareholders.
  • Although Companies Act has embraced the shareholders with provisions to safeguard their interests, companies, as well as shareholders, prefer entering into the agreement as it creates transparency with regards to rights and obligations of both the parties and consequently, immensely helpful during litigation.
  • Generally, a Shareholder Agreement and Share Purchase Agreement are clubbed together and the agreement is known as the Share Purchase Shareholders Agreement (SPSHA).
  • In a Shareholders Share Purchase Agreement, there is a transaction of sale of equity from one party to the other party. That is to say, there is a sale of ownership along with the risk.
  • SHSPA is a binding and final document for sale of shares. It can be entered between anyone who is purchasing the shares of the company and the company. The  following transactions can be structured in a SPASHA;

1) An individual purchasing a few shares in the company.

2) Financial investors purchasing a minority stake in the company.

3) A company/strategic investor acquiring a controlling stake in the company.

4) Buyout by Private Equity Fund.

In this article, we are not considering the fourth transaction.

Important aspects of BTA

  • BTA is similar to a Sale Deed. It can be called as an end document because pursuant to the transfer there is no interdependency between the two parties.
  • Neither the transferor nor the transferee needs each other’s assistance apart from the transition period where the transferor is obliged to provide assistance to the transferee if mentioned in the agreement.
  • The utmost priority of the transferee is receiving the business the way it was represented and valued. There are high chances of window dressings or encumbrances with respect to the title of assets as Slump Sale includes a large number of assets.
  • BTA is structured in a way where the seller is put in a secured position to receive the consideration and the buyer is secured to receive the business as represented by the seller.

Important Aspects of SPSHA

  • The SHSPA is an agreement which initiates and establishes a relation between two parties that is the company and the one investing in the company.
  • The very purpose of structuring the transaction is deriving an arrangement between the two parties wherein the need of one party that is capital, is served by the other party with an expectation of returns with time.
  • Therefore, the intent of one party, that is raising investment for itself is served. The other party has to wait for the returns or the appreciation of the capital. The level of returns that the other party can acquire rests in the hand of the company and its performance to a great extent. By contrast, if the company does not perform well the investors lose the principal amount.
  • Let’s say if the company raises investment and the promoters start splurging money for Las Vegas trips and buying luxury cars or start investing the capital in other startups. Likewise, if the investor after investing starts pressuring the promoters to take certain decisions for his personal benefit or insists on some restructuring. In order to combat this, the agreement has to safeguard the rights of both the parties

Internal Approvals needed for a Slump Sale


  • S. 180 (1)(a)(i) of the Companies Act makes it mandatory for the Board of Directors of a Public Company to initiate the selling of the undertaking of the company if it exceeds 20% of its net worth or which generates 20% of the total income of the company during previous financial years, only by means of special resolution. In case of the private company, an exemption has been granted.
  • Rule 4(f) of The Companies (Passing Of The Resolution By Postal Ballot) Rules, 2011 mentions the Special Resolution for this sake has to be carried out by postal ballot.
  • On the purchaser’s side, a board resolution has to be passed as stated by S.179 of the Companies Act.
  • The Agreement specifies the production of Certified Copies of the Board Resolution and Special Resolution as a Condition Precedent.
  • S.177(4)(vi) of the Companies Act along with Rule 6 of Companies (Committee of the Board) (Meetings of the Board and Powers) Rules, 2014 states that an audit committee has to report the valuation of the assets whenever necessary to the Board of Directors subject to certain thresholds. The valuation report is a condition precedent.

Internal Approvals needed for Share Transfer


  • In case of an acquisition, both the Companies needs to pass Board Resolution as mentioned in S. 179 (k) (acquire controlling/ substantial stake in other company) and amend the articles of companies in case they refrain the company from getting into such arrangements.
  • One of the Condition Precedent in the agreement is a Certified Copy of the Board Resolution and other permissions/ approvals.



A few important warranties from a BTA are as follow-

1) Warranty that the assets like plants and machinery are maintained as per good industry standards

2) Warranty that the seller has complied with the concerned laws and that has not received any notice or default with respect to laws.

3) Warranty that accounts and audited Closing Accounts will be prepared in accordance with the applicable accounting regulation.

4) Warranty of production of Tax Clearance Certificate as mentioned in Section 281 of the Income Tax Act.


  • A few important warranties from the SHSPA are as follows –

1) The Sellers are entitled and authorized to sell shares in the manner and upon the terms and conditions set in the agreement.

2) The Sellers are absolute legal and beneficial owners free from all encumbrances, liens charges and adverse interests of the Sale Shares in the company and have validly acquired and are authorized to validly hold the Sale Shares in the Company.

3) The execution, delivery and performance of the Agreement or the transactions contemplated under this Agreement by the Company and the Sellers will not result in any breach of their constitutive documents or any agreement entered into by them or any contract agreement instrument or document to which they are a party or by which any of their assets are bound.  

Taxation on the transactions


  • The taxation would be in accordance with the S.50 B of the Income Tax Act. This section is headlined as a special provision for computation of capital gains, therefore, it has an overriding effect on the other provisions.
  • For a slump sale, the net worth is (aggregate value of total assets of the undertaking – a value of liabilities of the undertaking as appearing in its books of accounts). Capital Gains is calculated as the difference between the consideration of the sale and the net worth.
  • If the undertaking is owned and held for more than 36 months, capital gain arising out of it will be long term capital gains tax whereas if it is held less than 36 months then short term capital tax is attracted.
  • A Slump sale made by a holding company to its 100% subsidiary is tax neutral under S.47 of the Income Tax Act. (Section 47).


  • If the shares are held for less than a year, then that attracts short term capital gains. For the short-term capital assets (includes shares), S.111A(1)(b)(i) of the Income Tax Act states that the tax has to be calculated at the rate of 15%.
  • In the case of Long term Capital Gain, 10(38) of the Income Tax Act provides an exemption on the transfer of shares subject to some exceptions and conditions.

Stamp duty


  • As mentioned earlier, BTA is structured in the way of an agreement to sell thereby not amounting to any kind of transfer or as a conveyancing document. Different states have different stamp duties, therefore the rate of stamp duty depends on the place and the kind of agreement.
  • Let us take an example of a slump sale in Delhi;

BTA if structured as conveyance

The stamp duty in Delhi would be in accordance with Article 23 of Schedule 1A of the Delhi Stamp Act that is 3% of the consideration amount set forth in the instrument.

BTA if structured as Agreement to Sell;

The stamp duty in Delhi would be in accordance with Article 5(c) of the Schedule 1A of the Delhi Stamp Act that is fifty rupees.


  • For the transfer of the shares, the stamp duty to be paid differs from state to state.
  • Let us take an example in the State of West Bengal;

The stamp duty to be paid on the Share purchase Shareholders Agreement will be in accordance to Article 62(a) of Schedule 1-A of the West Bengal Stamp Act that is 0.25 % that is twenty-five paise for every hundred rupees of the value of the share.

“Closing actions” in the agreements

  • Two dates that are typically found in both the agreements, “Execution Date” and “Closing Date”. Execution Date refers to the date on which the Agreement will be executed and Closing Date refers to the date of consummation of sale and purchase of the business upon satisfaction of the condition precedent and consummation of activities.


  • For a BTA, the Seller is under an obligation to carry out the business, the way it was carried before the execution date, till the closing date with the subject to certain terms and conditions. Moreover, the purchaser can exit pursuant to the closing date however he will be obliged to support on the related matters as agreed by him in the agreement.

The clause can be as follow;

The Seller shall deliver to the Buyer all such Assets which are capable of being absolutely transferred and assured unto and to the benefit of the Buyer by actual or constructive delivery of possession. Customary Deeds of Conveyance sufficient to convey, transfer and assign to the Buyer all the right, title and interest of the Seller in, to and upon the Assets and physical possession of all tangible Assets.

To conclude, the transaction closes on the note of the seller’s exit and the business getting transferred to the buyer.


  • On the other hand, for an SHSPA the other party becomes a part of the company pursuant to the closing of the transaction.

A clause can be drafted as follow;

The Seller shall deliver to the buyer share certificates and duly stamped and transfer forms, copies of the certified written instructions of the Sellers to their depository participant to transfer sale shares to the purchase demat accounts.

The Board shall pass resolutions to approve & record the transfer of the sale shares from the sellers to the purchaser as the register holder of the Sale Shares and deliver certified Copies of such resolutions to the Purchasers and Sellers.

The closing of the transaction in the agreement is by the buyer becoming a part of the seller’s company.


Both the agreements are instrumental in protecting the interests of the parties going ahead with the transactions and therefore have to be drafted diligently taking into consideration all the facets and possibilities that can arise. A well-drafted agreement can avoid complications leading to arbitration which in turn saves money, time and of course a lot of headaches.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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