Business Transfer Agreement

What is a Business Transfer Agreement?

A Business Transfer Agreement also known as a Business Sale Agreement is for use when the owner of a business sells the business to a new owner. It outlines the terms and conditions under which the transfer will occur, including the assets, liabilities, and other key components of the business.

Is it mandatory to have a Business Transfer Agreement?

No, it is not mandatory to have a Business Transfer Agreement. However, having one will clearly outline the conditions and offer legal protection to both parties from any potential legal disputes in the future.

What must a Business Transfer Agreement contain?

The Business Transfer Agreement must include the following clauses:

• Parties involved: Names and details of the seller and buyer of the business.
• Description of business: detailed description of the business being transferred.
• Transfer of assets: assets to be transferred with the business.
• Transfer of employees: condition of transfer of employees.
• Transfer of liabilities: details of responsibilities regarding existing liabilities of the seller.
• Purchase price: The agreed-upon price for business and payment terms.
• Non-compete clause: restraint of trade preventing the vendor of the business from opening competing businesses
• Confidentiality clause: so that the outgoing owner can provide sensitive information to the purchaser if required and that information can be kept confidential
• Intellectual property clause: (such as logos and designs) which are also to be transferred with the business including possibly a transfer of any business name.
• Regulatory approval: Both parties shall take necessary regulatory approvals before entering into this transaction.

Who can enter into a Business Transfer Agreement?

Any individual above the age of 18 years or entities registered in India can enter into a Business Transfer Agreement.

What can be the duration of a Business Transfer Agreement?

The duration of the Business Transfer Agreement typically covers the period required to complete the transfer process and the obligations of each party. There is no fixed duration for a Business Transfer Agreement and it depends on the complexity of each transaction.

What has to be done once a Business Transfer Agreement is ready?

The Business Transfer Agreement will be legally binding when it has been printed on non-judicial stamp paper or e-stamp paper, signed by both the Vendor and the Purchaser and has been dated. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding the stamp duty payable can be found on the State government websites.

Both parties may keep a signed copy of the Business Transfer Agreement. In order to do this, two different copies can be signed, or if only one copy is signed, it can be photocopied and then distributed between the parties.

Is it necessary to have witnesses for a Business Transfer Agreement?

No, it is not mandatory under the law. However, having two witnesses above the age of 18 years will add to the credibility of the Business Transfer Agreement and help in resolving the disputes in future.

Can a Business Transfer Agreement be terminated?

Yes, a Business Transfer Agreement can be terminated. The Business Transfer Agreement is mainly terminated on the following grounds:

• Mutual agreement between both parties
• A material breach of contract by one party such as non-payment, or compromise of key confidential information to third parties.
• Unforeseen circumstances where the project cannot be continued (force majeure event).

Which laws are applicable to a Business Transfer Agreement?

Business Transfer Agreements in India are subject to the Indian Contract Act, 1872 which covers general contract principles like formation and mutual understanding and the Sale of Goods Act, 1930 which deals with title to goods and warranties. General principles of contract law, as provided by the common law, will apply to this Agreement.

The rules and regulations of the Transfer of Property Act, of 1882 will also be applicable if the transfer includes immovable properties.

Depending on the industry within which the business operates, other bodies of law, specific to that industry, may also apply.

If employees are being transferred with the business, then elements of employment law may apply including the Factories Act 1948.

If intellectual property is being transferred with the business, then elements of intellectual property law can apply, such as the Trade Marks Act, 1999 or the Copyright Act 1957.

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