Share Purchase vs. Business Transfer Agreements in M&A Transactions

Summary: A Share Purchase Agreement (“SPA”) and a Business Transfer Agreement (“BTA”) represent fundamentally different approaches to structuring an M&A transaction. Under an SPA, the buyer acquires shares of the target company while the company continues to own its assets, contracts, licences, employees and liabilities. Consequently, the buyer indirectly assumes the target’s historical risks and exposures, making due diligence, representations, warranties and indemnities particularly important. A BTA, by contrast, transfers an undertaking or business itself and, in India, may commonly be structured as a slump sale for lump-sum consideration without assigning separate values to individual assets and liabilities. The undertaking must constitute an identifiable business capable of independent operation. The structures also differ significantly in relation to contracts, licences, employees, closing mechanics, successor liabilities and regulatory approvals. From a GST perspective, securities are generally outside the scope of goods and services, while a genuine transfer of a business as a going concern is treated as an exempt supply of service. Income-tax treatment also varies, with slump sales governed by provisions relating to capital gains on transfer of an undertaking. Ultimately, the appropriate structure depends upon what the buyer intends to acquire, which liabilities should transfer, operational continuity, tax consequences, regulatory requirements and the parties’ preferred allocation of transaction risk.

Share Purchase Agreements vs. Business Transfer Agreements: A Structural Guide to M&A Transactions

Introduction: 

Choosing between a Share Purchase Agreement (“SPA”) and a Business Transfer Agreement (“BTA”) is one of the first and most consequential decisions in structuring an M&A transaction. This choice determines what the buyer actually acquires, which liabilities remain with the seller, how the deal is implemented, and the legal, regulatory, and tax consequences that follow for both parties.

What Is a Share Purchase Agreement?

A Share Purchase Agreement is an agreement under which a buyer acquires shares in a target company from its existing shareholder or shareholders. The company itself continues to own its assets, contracts, licences, employees, and liabilities what changes is who owns the company.

An SPA generally specifies:

a) The number and class of shares being transferred

b) The purchase consideration

c) The payment mechanism and timeline

d) Conditions precedent

e) Closing actions

f) Representations and warranties

g) Indemnities

h) Post-closing obligations

i) Governing law and dispute resolution

Because the company itself passes to the buyer intact, the buyer inherits its history along with it. Unless specific contractual protections are negotiated, the buyer remains exposed to the target’s known and unknown liabilities.

What Is a Business Transfer Agreement?

A Business Transfer Agreement governs the transfer of an undertaking or business rather than a company from seller to buyer. In India, this is commonly structured as a slump sale: the transfer of one or more undertakings, by any means, for a lump-sum consideration, without assigning separate values to the individual assets and liabilities transferred.

For a transfer to qualify as an undertaking, it must represent an identifiable business activity capable of standing on its own complete with the assets, liabilities, employees, contracts, and licences needed to operate and generate revenue independently.

The Fundamental Difference:

Treatment of Assets and Liabilities

Under an SPA, assets and liabilities don’t move they stay with the target company, and the buyer simply becomes that company’s new owner. This makes diligence, warranties, indemnities, and price adjustments the key tools for managing inherited risk.

Under a BTA, the parties must affirmatively identify the undertaking being transferred. This is not the same as an asset purchase, where a buyer can cherry-pick individual assets. A business transfer generally requires moving the business activity as a whole, along with everything needed to keep it running independently.

The Going-Concern Requirement

This is central to any BTA structured as a slump sale. The transferred business must continue operating without interruption there should be no break in continuity. Practically, this means the buyer needs the infrastructure, licences, and operational arrangements in place before the transfer completes. A business that can’t function independently post-transfer may fail to qualify as a going concern in the first place.

Consideration and Valuation

a) SPA:Consideration is paid for shares via fixed price, locked-box mechanism, purchase-price adjustment, deferred consideration, or another agreed structure.

b) BTA (slump sale):Consideration is a lump sum for the business as a whole. No separate values are assigned to individual assets or liabilities. A working-capital adjustment is permissible without changing the transaction’s character, provided the business is still valued as a single undertaking.

Conditions and Closing

SPA closing typically involves:

a) Payment of consideration

b) Transfer of shares and delivery of transfer documents

c) Resignation/appointment of directors

d) Replacement of authorised signatories

e) Corporate actions recording the new shareholder

f) Updates to statutory registers

BTA closing typically requires:

a) Corporate approvals

b) Transfer or novation of contracts

c) Third-party consents (customers, suppliers, lenders)

d) Transfer or reissue of licences

e) Employee transfers

f) Delivery of title documents and asset registrations

g) Steps ensuring immediate post-completion operability

Note: for a public company transferring the whole or substantially the whole of an undertaking, shareholder approval by special resolution may be required under the Companies Act, 2013, where statutory thresholds are met.

Contracts, Licences and Employees

Tax and GST Considerations

a) Share transfer:May trigger capital-gains tax for the seller; stamp duty applies to the transfer instrument. Securities are excluded from “goods and services” under GST law, so GST generally doesn’t apply.

b) Asset transaction:Capital gains calculated separately per asset, depending on nature and holding period; GST may apply.

c) Slump sale:Transfer of a going concern is exempt from GST under the relevant notification. For income tax, slump sales fall under provisions governing capital gains from transfer of an undertaking the undertaking’s net worth is treated as the cost of acquisition.

The tax treatment of a business transfer can be more favourable to the seller than an itemised asset sale, though outcomes depend heavily on structure and applicable law.

Successor Liability

SPA:

The buyer inherits the target’s full historical position past operations, litigation, tax exposure, contracts, and compliance history. Standard protections include:

a) Representations and warranties

b) Specific and general indemnities

c) Purchase-price adjustments

d) Escrow arrangements

e) Deferred consideration

f) Liability caps and survival periods

BTA:

Offers greater ability to define exactly which assets and liabilities transfer but doesn’t eliminate successor-liability risk entirely. Since the undertaking moves as a going concern, buyers still need to carefully assess statutory, tax, employee, and contractual liabilities attached to it.

Regulatory and Competition Considerations

Both structures can trigger regulatory review. A transaction involving shares, control, voting rights, or assets may qualify as a “combination” under the Competition Act if thresholds are met this applies equally to business transfers crossing the relevant limits.

Other considerations include sector-specific approvals, foreign-exchange regulations, listed-company disclosure requirements, and lender consents. For non-resident purchasers, structure matters particularly: since a non-resident entity generally cannot conduct full business operations in India without an Indian presence, an Indian company or LLP is often used to acquire the undertaking.

When to Choose an SPA

Best suited when:

a) The buyer wants the company as a whole

b) Contracts, licences, and employees should stay with the existing legal entity

c) Continuity of corporate structure matters

d) The buyer is comfortable taking on historical liabilities, subject to diligence and contractual protections

e) The deal is fundamentally an ownership change, not a carve-out

Operationally simpler in many respects but demands comprehensive diligence, since the target’s full history comes along with it.

When to Choose a BTA

Best suited when:

a) The buyer wants a specific business undertaking or division, not the whole company

b) The seller wants to retain other businesses or assets

c) The parties want a going-concern transfer for lump-sum consideration

d) The business can operate independently post-transfer

e) The deal should focus on the undertaking, not the seller’s overall ownership

f) The parties want precise control over which assets and liabilities move

Often more operationally complex third-party consents, regulatory approvals, and employee-transfer arrangements can add significant execution risk.

Conclusion

An SPA transfers ownership of a company through its shares, leaving assets, contracts, employees, and liabilities in place. A BTA transfers a business as a going concern for a lump-sum consideration, moving the operation itself along with what it needs to run independently.

The right structure depends on the nature of the business, the liabilities involved, the assets and contracts to be transferred, the desired tax outcome, regulatory requirements, employee arrangements, and how the parties want to allocate risk between them.