Ensure Lawful Electronic Signatures for Business Purchase Agreements

How to eSign a document: electronic signature lawfulness for Business purchase agreement

ladies and gentlemen thank you for taking the time to be with us today and welcome to the m a Academy program and our fourth webinar in the 2023 program my name is companies corporate m a group based in New Delhi I would like to extend a very warm welcome to this webinar to every one of you whether you are in our audience in India or around the world thank you for taking the time to be with us today for those that have not attended before I note that the m e Academy program is designed to provide foundational legal knowledge and understanding on M A transactions and processes to corporate Executives in-house legal teams and others participating or interested in m a in India today our subject today is business purchase agreements structure and key terms the format today will be a formal presentation on today's subject followed by a q a with audience questions we've already received some audience questions in advance and if you still have more questions please feel free to submit them using the facility provided in the webinar portal if we cannot cover all questions during the webinar we will be sure to respond to those questions offline by email after the webinar you will also receive a copy of the presentation along with summary notes of the presentation and a recording of the webinar after the presentation as a matter of course m e is an important part of our firm's practice with more than 50 Partners dedicated to this area because India is experiencing massive growth in m e transactions last year we covered share sale transactions and asset sale transactions in considerable detail and if you have missed those sessions I refer you to ketan and Company's YouTube channel where recordings are available to view at your convenience today's subject is a logical extension of what we have already covered in the MLA Academy because in many cases a business sale is a very real option for parties to consider as an alternate to a share sale transaction in some cases a buyer may have good reason to opt for a business sale transaction instead of looking to purchase Securities of that company for example in situations where there is a certain liability that the buyer is uncomfortable taking all um or a liability that simply cannot be Quantified then in such cases a a business transfer agreement becomes a very real option to buyers in such instances and today we will spend some time talking about uh the manner in which a business purchase agreement is to be structured and the advantages and disadvantages that need to be evaluated at the time of uh structuring the transaction so this reason alone it is important for you to understand business purchase agreements which of course is our objective today our speaker today is suhana Islam murshid who is an m a partner based in Kolkata although she works nationally as do all of our corporate M A Partners suhana has been with ketan and Company for eight years and became a partner in 2019. she specializes in m a and is very experienced in this work most of you have already received her CV by email so I will not go into too much detail regarding her experience but some of her recent notable assignments have included Reliance jio's acquisition of shop sense retail Technologies TVs motor acquisition of e-mobility group and acquisition of a majority stake in medical Synergy private limited for a thermostat subsidiary it is difficult to think of a better partner to share her knowledge with you on this topic today so I now invite suhana to deliver her presentation thank you nidhi good afternoon ladies and gentlemen and a very warm welcome to all of you to today's session which is titled business purchase agreements structure and key terms now as you may know there are various modes of acquisition that are permissible in the m a ecosystem for example the parties may choose to have a court driven process as is in the case of a merger or a demerger or a buyer may want to acquire the shares of a company by way of a share purchase agreement it's also possible to have an itemized sale of certain Cherry Picked assets by way of an asset sale and purchase agreement or one could even consider an acquisition of stressed assets under the insolvency and bankruptcy code regime now for today's webinar the topic is business purchase agreements which is a fifth mode of acquisition wherein um you know there is an entire undertaking or a business activity that is being purchased now to my mind business purchase agreements offer two unique propositions first of all it allows the buyer to acquire a ready and operational business that it can conduct from Day Zero of its acquisition and secondly the key differentiator really is that a business purchase is intrinsically linked to certain tax considerations and we are going to consider those in a moment from now for the agenda for today's session uh I've roughly divided my presentation into two broad portions in the first part of my presentation I am going to talk about certain key conceptual aspects of a business transfer including some of these tax considerations in stamp Duty and in the second part of my presentation I will Deep dive into certain transactional considerations including conditions precedent transfer Clauses and risk mitigation finally I'll wrap up my session with certain key takeaways next slide please now as I've mentioned to you a business purchase is quite unique in the sense that it is uh intrinsically linked to certain tax considerations now in India one must bear in mind that when we talk about a business purchase it is often referred to as a business transfer or in Indian Parliament smoke colloquially sometimes just as a slum sale of business now what is a slum sale of business when a business is transferred from the seller to a buyer and it meets certain conditions which are prescribed under the tax laws then it is termed as a business transfer by way of a slum sale now there are certain important tax considerations uh the main being and for now it is just sufficient to know that there is a separate mode of computation of income tax when it comes to a slum sale which is generally speaking considered to be more seller efficient and friendly now with that let's understand what is this concept of a slum sale so in slum sale and this is defined divide defined under the income tax act in a slum sale there are four essential conditions that must be met first of all it must be a transfer of an undertaking now what is an undertaking and undertaking is nothing but a separately identifiable stand-alone business activity so for example we may have a airline which runs both a cargo division as well as a passenger airline business now if the cargo division is being sold off or transferred then in order for it to qualify as an undertaking it must have all the infrastructure that is required for it to carry on the business so for example it must have all the assets all the liabilities must have all the contracts employees licenses and permits and what have you whatever is required really to carry on the business and it is this business that must be transferred as a going concern basis which is the second condition or the leg of a slam sale that there should be no cessation in the business operations or activities it must seamlessly pass on from the seller to the buyer again this transfer could be by any means which means that it could be for a sale for cash consideration it could also be for consideration other than cash and finally to my mind perhaps the most critical aspect of a slum sale is the fact that the consideration that the buyer pays must be a lump sum consideration now what that means is that separate values should not be assigned to any of the components of the business so for example values to assets liabilities Goodwill Etc should not be separately provided there should be one separate lump sum consideration like one whole so the entire undertaking that should be mentioned in your business purchase agreement the only exception that is provided under law is that it is possible to assign values to the different components of a business undertaking for the sole purpose of arriving at stami Duty and registration fees now a business purchase also allows certain other unique uh aspects uh for the purchaser and the buyer the first one being that it is possible to exclude certain assets and liabilities from the whole Ambit of the undertaking that is being transferred now one must bear in mind and Shred with caution here really because uh what you know while excluding these assets and liabilities relevance is and the important point to consider is whether we are losing the character of an undertaking does that chip away into the meaning of an undertaking as it is understood under the income tax act now it is possible like I mentioned to exclude certain assets but these are usually a minimal list of assets and they are usually for example assets which are not intrinsically linked to the business that is being transferred or it could be assets such as certain employees who are not really employed or engaged with that particular business or certain contracts or even intellectual property for example if a seller wants to retain certain trademark even post transfer then that would typically be something that is excluded now for excluded liabilities again this becomes very critical especially for a buyer because this allows the buyer to really um lean back on the diligence that it has conducted and um typically you know large litigation claims or tax claims which are known to the buyer could be excluded again with caution uh that it should not take away from the very concept of an undertaking another unique aspect that a business purchase allows is risk allocation now uh it is possible in a business purchase to have the business transfer done from a retrospective date so for example if the seller and the buyer enter into a business purchase agreement and that is closed and the transfer takes place um on say 9th of May 2023 it is possible to contractually agree that the transfer would have deemed to take place from an earlier or a prior date say first of April 2023. now typically we have seen a parties do that because it allows a lot of operational and accounting ease when the business transfers on the first day of any Financial year uh and from a risk allocation perspective how this works really is that the seller's risk is obviously limited to a shorter period of time uh first of April uh 31st March in this case and the buyers risk therefore gets extended um ingly so this is also risk allocation tool next slide please now I've been mentioning that there are certain intrinsic tax considerations and while the subject matter of this webinar is not tax but the m a aspects of a business purchase I really cannot go ahead without explaining some of these Concepts because they're so intrinsic to a slum sale now as I mentioned earlier a slum sale generally speaking will allow a more tax efficient route for a seller while selling its business of course whether or not factually it is a more tax efficient route will really depend on number crunching but uh it is sufficient to know that there is a separate computation that is prescribed under the income tax act for calculation of gains in case of a slum sale in case of a business transfer slum sale now all the gains that the seller makes for the sale of the business to the buyer will be taxed as capital gains tax and it is linked to duration of holding of the business undertaking so any uh business undertaking that is held for more than three years will be taxed as long-term capital gains and anything less than that will be taxed as short term now from an m e practitioner perspective what one must bear in mind is that the consideration that the buyer will pay to the seller uh will have to meet a minimum price now this minimum price will be computed ing to the mechanism which is given under the income tax act and a valuation certificate will have to be given uh by a chartered accountant so again from a transactional aspect uh this is an important condition precedent that the buyer must factor in and also while discussing and arriving at the final timeline for its uh for the business acquisition now the other tax implication is of course indirect tax and perhaps this is the biggest driver that is driving a business sales today by way of a slum sale is because there is nil GST incidents when there is a transfer of Business by way of Islam sale and the rationale for this really goes back to the concept of an undertaking in this case uh there is no itemized sale the seller is not selling separate assets it is selling its entire business undertaking including liabilities and therefore GST is a nil and you know one can save on the 18 GST hit which would otherwise uh have got attached now of course no tax discussion is complete without a discussion on tax risks and there are two risks that I want to highlight from an m a perspective the first risk is called successor liability that a buyer must be aware of now what is successor liability it is nothing but the fact that a seller the buyer of a business becomes responsible for the tax of the seller from the completion date and also for two years prior to the completion date so T minus two and then or the period post completion now this is a statutory provision and it will trigger on two circumstances number one is when the the seller cannot be found cannot be traced for whatever reason or secondly if a tax is assessed and cannot be recovered now in such a situation the obviously the tax liability moves on to the buyer and there are various main ways to mitigate this risk but the cleanest and I think the most easiest way to do that for a buyer is to ensure that the robust tax a diligence is done and that a robust warranty and indemnity package is being agreed and you know hardwired into the agreement now the other tax uh consideration and risk that one must bear in mind is popularly called the section 281 tax risk now this section 281 of the income tax act is notorious because it gets um you know triggered in almost every mode of acquisition so if there is a sale of shares assets or uh in in some cases in business transfers as well um and in such a case the law basically provides that um if there is an alienation of assets by the seller during the pendency of any tax proceedings then the purchaser may become the entire transfer in fact may become void uh if that tax liability cannot be recovered so of course it's very very critical from a buyer perspective now there is a mood question here on whether section 281 is really applicable to a business purchase given that the section only talks about a transfer of assets but again from an M A practitioner's View at least while um advising the buy side it has become almost common practice in Market practice now to ask for a section 281 NOC now what this NOC really does and this is a workaround that the law provides is that if the buyer and the the seller they approach the tax department and the tax department will give a no objection clearance for the transfer then the buyers obviously risk is mitigated to that extent now again from a timeline perspective this NOC um in our experience can take anywhere between 10 days in a best case scenario it can go up to four weeks to up to six weeks so again from timeline perspective uh one has to factor in this section 281 NOC requirement into the final timeline next slide please um now we have a small poll question if we can have the polls slide as well uh in this case uh there is a company a seller which is engaged in the business of manufacture food products and chemicals now the seller sells its chemical division to the buyer for a lump sum consideration without assigning any values now the assets that the seller transfers to the buyer are all the fixed assets the know-how documents licenses all related to the chemical division all the current assets and liabilities are retained by the seller not get transferred and all the employees are also not transferred now in a moment from now you will have a poll question in which I'll uh you know I'll request you to put in your thoughts on whether you think this is a slum sale of business as we have just discussed or not can we launch the poll please I'll wait for five seconds for you all to please uh kindly put in your responses can we have the results please thank you can we have the results thank you so much so I see a majority of you all have chosen um no which is 53 and that is in fact the right answer and this the facts of this case which I just presented I've been taken from an order of the income tax appellate tribunal in fact where it was Whole Health that this is not a slum sale of business and the rationale for that was uh that at least the tax officer the Apple tribunal considered that this would be akin to an itemized sale of assets given that there was a complete um non-transfer of all the current liabilities of all the employees of all the current assets and this could therefore not be qualified as a slum sale of business um which means that it would obviously not be taxed as a slum sale will not have the benefit of the tax computation that we just discussed next slide please so in this slide um you know the idea behind this slide is to just provide a broad overview of the various stamp Duty rates that could get um attracted for the various agreements that the slum sale of business would have uh we've taken two sample States Delhi and Mumbai but really the driving Point here what I want to talk about is the fact that in a slum sale in a business purchase it's just not one agreement that we talk about it is there are several ancillary and incidental documents as well so of course the master agreement will be the business purchase agreement but usually if there is immovable property it is quite common to convey that immovable property through a separate deed of conveyance and the reason for that is as you all know a conveyance need is a registrable document it becomes public in nature and of course parties may not want their commercials which are mentioned in the business purchase to become a public document similarly if there is intellectual property it is quite usual to have an assignment agreement for contracts as well there could be assignment agreements there could be Innovation agreements Etc next slide please now let's move on to the second part of my presentation where I want to talk about certain transactional aspects um now in a business purchase timeline planning becomes extremely important and the reason for that is there are several checks and balances several conditions precedents that would come into play and a lot of external stakeholders as well so I just want to discuss a few key um conditions precedent here the first and the most basic of course is your Charter documents now um both in case of a seller and a buyer they should the first check and the basic Checker diligence will do is see if the charger documents of the companies have an enabling provision which allows for the buy and sale of a business undertaking usually this is not a problem because most uh you know Charter documents would have such an enabling provision but in addition the buyer should also check whether it's memorandum of Association the main objects Clause allows it to carry on the business that it wishes to purchase so going back with our prior example if you have the cargo division of a of the airline being transferred to say a chemical uh company then perhaps you may need to look at your Charter documents and have those amended another very important point is your prior approval of the competition Commission of India now as you may know any transfer of shares voting rights or assets would require a prior approval of the competition Commission of India in certain cases and a business transfer is really no different so in case of a business transfer is meeting certain thresholds which are prescribed under law and these are usually connected to asset size and revenue uh then a prior approval would have to be required now of course the outer timeline given under law is 210 days for us to receive the approval but in my experience it can take anywhere between two to three months for a non-controversial case to receive such approval so again a very very key point to bear in mind from a timeline perspective again for transactions that are likely to happen this year onwards in this point onwards uh it's very important to remember that our competition laws are presently undergoing an amendment and there are certain new thresholds that are being contemplated and these are linked to deal value or if the target entity has substantial business operations in India now what is deal value how that will become you know calculated and what does it mean by substantial business operations uh they are all gray areas and mood questions right now and we'll have to wait for the notified rules but that aside this must be an important you know I would recommend that we keep this in the back of our head uh before proceeding with any uh transaction this year again corporate approvals will be required like in any other mode of acquisition uh board approvals are always required but in the case of a business transfer the seller would also require to take a shareholders approval and that two of 75 of its shareholders if the transfer is a transfer of an undertaking now again undertaking here is not the undertaking that we understood as it was defined under the income tax act there's a separate more I would say a more precise definition which is given under the company's act which is linked to either the income that that business unit is generating or the Investments that the company has made in that in in that particular unit again um uh there are certain Stock Exchange disclosure Norms as well so if the parties are listed a stock exchange a disclosure must be made within 24 hours of the signing event usually on the signing of the definitive documents and finally we come to a very important aspect which is consensus now in a business transfer usually several concerns will be required so one has to check during the diligence process all the contracts uh that the company has that particular undertaking has with lenders uh with contractors with customers insurers for example and if there is a consent requirements then prior consent must be taken so from a timeline perspective this has to be factored in because it could be quite time consuming as well next slide please so I want to discuss these various components of the business transfer and the transfer Clauses in a slightly more detailed manner here now as I mentioned earlier when there is a business transfer it has to be a business entire business undertaking which means of course there'll be very various moving parts and various components of that business uh that the purchaser is acquiring so for example if there is immovable property uh involved in the business then the first point one must check is that if it's Freehold or is it leasehold if it's Freehold things are fairly simple because the parties will sign the deed of conveyance pay the stamp Duty registration fees and the Property Transfers to the buyer however if it is lease hold certain additional checks may need to be done so in a lease whole property first thing I would recommend is to check who is the Lesser is it a private party or is it a state the Industrial Corporation some State Authority or the government so for example in Mumbai you may have the midc or you may have UPS IDC or other such authorities uh because more often than not when it is a state Authority there could be an underlying legislation as well that you have to check and you know you need to check if there are consent requirements if there are transfer taxes that are payable to such Authority so once that check is done under requisite consent or transfer taxes are paid uh then the property can move uh over to the buyer this can happen through various ways you can have a sublease Arrangement you could have an assignment of the lease deed um or in some cases a fresh lease agreement may also be fined by the purchaser now movable property is fairly simpler in in approach because movable property is usually transferred through the main Master business purchase agreement and it is transferred by a delivery of the physical possession of the movable property now of course you can choose an opt to have a separate deed of conveyance but then again separate stamp Duty Etc will be paid for intellectual property now if it is owned intellectual property parties which usually have a assignment agreement for transfer of that intellectual property if it is registered then certain post facto intimations will also have to be given to the relevance authorities say a trademark Authority or patent and if it is licensed intellectual property then of course you may have to enter into a sub license agreement or a fresh license agreement again consents may be required at this stage now the next component is very very important for any business transfer because in India no business can really be done without the plethora of licenses and permits that accompany it now unfortunately most industrial licenses or I would at least say a majority of them are non-transportable in nature so for example your fire NOC Factory registrations environmental clearances are non-transferable then there are certain other licenses in which you could have a name change or address change application and in certain other licenses you need to make a fresh sort of application for the transfer so depending on the license the nature of the license also the validity of the license the buyer can either a procure fresh licenses or have them transferred now the time taken for transfer versus procurement of fresh licenses are almost similar so we usually find that buyers prefer getting new licenses altogether to avoid any Legacy issues uh with that and also buyer controls the process as well to some extent now for contracts uh there could be of course several types of contracts in any business there could be customer vendor contracts you know service contracts Etc in all contracts um there could be assignment uh consent requirements now under Indian law if there is no a specific assignment clause or it's silence that means a consent of the counterparty will be required and that must be born in mind so once the contracts are the consents are received then the parties can have an assignment of the contract or they could also have a Novation agreement which is basically where the is substituted by the purchaser and then we come to employees again a very very critical aspect of any business now employees again there are several considerations at play for employees one must consider are they workmen or are they not workmen or are they contract laborers now for Workman again is quite unique because there is a statutory provision that governs the transfer of workmen and the law requires that the two conditions need to be made and these two conditions are that there should be no break or interruption in the employment of that Workman and secondly is that the Workman should be employed on terms which are not less favorable than already available to it now if these two conditions are met then this entire transfer does not get categorized as a retrenchment no compensation therefore is payable and usually these two conditions we will hardwire into the transfer Clause itself and the transfer Clause will mention uh and satisfy the purchaser that these two conditions will be met now for non-workman category and workmen usually consents are typically always taken um contract laborers of course are slightly different in most cases the purchaser will enter into a fresh contract with the contractor uh for uh for use of such contract laborers now two other aspects insurance now Insurance of course is possible to be transferred by way of endorsement again a consent of the insurer may be required but um usually again we've seen that the purchaser entity depending on the commercials the coverage that it seeks uh the premium payable Etc may want to just get fresh insurance coverage and again litigation uh there are various ways to deal with existing litigation of course that litigation is excluded then that's not a topic for discussion but if the litigation is carried on then of course one could make an application and change the parties to the litigation but usually instead of going through that route the purchaser has a contractual Arrangement either the seller could continue the litigation and the purchases cost of Vice Versa the purchaser just put continue the litigation at its own cost next slide please and then I come to a very important Point uh which is risk and Mitigation Of course I cannot stress enough on the fact that you know risk mitigation aspects are key for any mode of acquisition um and especially so in a business transfer because we discussed there are so many Legacy issues that can come with the assets you're also taking over the liabilities of the business undertaking then there is successor liability so in order to mitigate that the best package to really do that is your reps warranties um an Indemnity package now typical representations and warranties for a business transfer would be for example that the business is carried on uh properly the assets are working properly employee dues are paid taxes are paid Financial records are in place and they're all limited to that particular business undertaking that the purchaser buys and there could be some important undertakings or covenants as well now covenants typically would be that are critical are further assurances where the seller is um you know Covenant basically giving an undertaking to the buyer that it will provide all assistance required sign all Deeds documents and everything necessary to really ensure that all the business transfer is effectively implemented there could also be further Assurance uh sorry apart from further Assurance there could also be standstill considerations which are very important because uh you know the purchaser would want to make sure that the business really does not have any linkage there is no adverse business impact for the time period between signing and closing and therefore stand still becomes very important and finally indemnities now for all known and unknown liabilities it is usual to have an Indemnity package um now I won't get into this in more detail here uh because my partner vedushi Gupta has done a bespoke session just on this point and I'd recommend you all to watch this on our YouTube page where we've discussed these aspects in more detail next slide please I think we are moving on to a poll question if and I'd love for you to please participate here what's in your opinion basis all the discussion that I've had over the last 30 minutes what in your opinion is the most critical aspect of a business transfer do you think it's the tax considerations defining the property sold and excluded or do you think it's the timeline planning planning of the CPS or all of the above can we launch the poll please thank you um I hope everyone's been able to put in your responses uh can we have the responses please okay so again an overwhelming all of the above and I couldn't agree more uh with the majority opinion here of course tax and can we move on to the next slide of course all the three components are extremely important but I would say it's all of those all of the three aspects that are on your slide so first of all of course it's the tax considerations it's the structural parameters we discuss the four components of a slum sale that we discussed uh that have to be born in mines they are definitely critical again drafting becomes very very important the transfer Clauses how do you exclude your assets liabilities is it nuanced is it clear the exclusion of the property that is very very important again from a risk mitigation perspective uh the warranties and indemnities become very very important given the number of risks that we have discussed and finally it's the timeline planning which is also key given the number of external stakeholders and I think collaboration between business teams and legal teams become very important for a business purchase more so than perhaps in other modes of acquisition and with that um with my key takeaways here I've reached the end of my presentation thank you so much for your patience hearing and I hope you find this presentation to be useful with the unity for next steps thank you suvada for what was a very insightful presentation I hope our audience enjoyed it as much as I did um and without further Ado I will jump right into the audience questions we've had a very active chat box so Hannah while you were presenting uh the session we've received some very interesting questions I'll take you through them one by one um the first one we have is um on how the stamp duty is calculated on a business purchase agreement and if you could probably focus on a movable property being transferred as part of the business transfer agreement and how stamp Duty should be computed in such a scenario that would be helpful sure thank you thank you for that question a business purchase agreement um now it would usually be very nominally stamped uh you know anywhere I mean I I gave the example of Delhi Mumbai for example Most states would be nominally stamped provided the immovable aspect of his of it is taken out of the business purchase agreement and there is a separate deed of conveyance so let's assume there is a business purchase agreement which transfers everything other than your immovable property um and also other you know intellectual property which could be differently um stamped but assuming that the business transfer just uh does not consider and does not have the immovable property it would be normally nominally stamped as any other agreement now um for of course Mumbai there is a separate provision given for any other agreement bearing a consideration so it would be stamped as a general any other residual agreement clause uh but the immovable property aspect of it will be separately stamped through a deed of conveyance and usually in every state um this is going to be based on the market value of the property or the consideration that is mentioned in the deed of conveyance which is supported by a valuation certificate now um usually how that could be done is you will take the market um you know this very Ragnar rates that are available or the circuit rates and it's usually a percentage it's three to five percent six percent in certain cases as well and it will be stamped at that uh there could be a valuation certificate required as well and the land and all the buildings um you know warehouses plant and missionary everything that is attached to the land is considered to be part of that immovable property and therefore is to be factored in uh while valuing the immovable property and then it's going to be a stamped at a particular percentage of that so you know broadly speaking this is how its age is done thanks for that one extremely helpful um I think the next question we have is on payment terms and the manner in which this can be structured uh for a business purchase agreement so I'm reading the next question which says can the consideration be differed and depending on the performance of the business can it be a variable or default consideration and how would you uh think about that in the context of payment terms under business transfer agreements so yes I think let's divide this response into Parts um Can consideration be different uh yes it would be deferred uh of course the underlying um understanding here is that it should not take away from the points that it has to be still a lump sum consideration so you as long as the lump sum consideration condition is met a portion of it of course could be retained in the first and I think that ties in with the question on payment terms so usually of course you have a purchase price and that purchase price is hardwired into the agreement this is a very linear sort of a business transfer uh in certain cases when there is a deferred element uh then you could have the payments terms uh you know slightly more Nuance now when do you have different consideration you could have it uh you know when there is a post closing adjustment of sorts a working capital adjustment needs to be done for example then uh it is typical that certainly the consideration may be differed or kept in escrow or sometimes you could have deferred uh payments uh just to sort of meet any potential liability similar to an Indemnity escrow so in such cases it is possible to structure the payments terms to allow uh for these um deferments um in my experience I would say it's not very it's not the norm but rather an exception to the non but of course it is possible to have a more um you know deferred sort of elements to the payment terms thanks Ohana the next one we have is um on transferring different sort of aspects uh linked to the business undertaking uh the first one and I'm clapping two questions the first one is on transfer of Ip um and the question is if a separate IP assignment agreement is required and the second question is on consents that are required from uh Steve Workman uh for the transfer of the business undertaking if those are uh bulky or excessive in number like say thousand plus Workman for example then how would one go about transferring um such assets that form a part of the business undertaking that's a great question um I'll move on to the first question which is I think um uh transfer of intellectual property right so in that uh intellectual property will be typically transferred by a deed of assignment if it is registered intellectual property so if it's a trademark um that is say uh sorry not registered but owned so if it is an owned trademark of the seller then you will have a deed of assignment where you will irrevocably and permanently sort of transfer that uh to the buyer for the benefit of the buyer um and like I mentioned if it's registerable then you may need to make certain post facto intonations now that is one way in which intellectual property can be transferred another way could be of course if it's not owned then you could have just um a license uh Arrangement a sub license Arrangement if the seller still has some skin in the game and wants to further license it or the buyer could just enter into a fresh license agreement with a relevant licensor of course consents may be required uh in that situation as well now sometimes when there is no major intellectual property and you may just have a say a brand name or a copyright or something which is not registered or something which is not owned or you know very formal in nature know-how Etc then typically this will get transferred through the business purchase agreement uh through the you know generic clause in the business purchase agreement that transfers all the intellectual property so that is how intellectual property will usually be dealt with um and the second question which is transfer Workman uh and I think the question was what happens if there is a large number of workmen that are to be transferred and I think that's that's such a pertinent question because that happens often and um in that situation I think there are several considerations at play uh number one is um you know not only the work the number of the workforce but also the locations of the plants like for example how spread out how many factories you know because that will also eat into the timeline planning and the feasibility of procuring concerns from every Workman again what is the literacy levels of these workmen are they able to comprehend the transfer to begin with and the various terms um now under law there is no prescribed manner in which This concerns have to be obtained the law only says that informed consent is required so now we've come you know come like most M A practitioners have come out with various creative ways to deal with it really um so in my experience we've had situations where even with like thousand plus workmen uh we've had in-person consents required uh but in certain other cases we've done mainly a town hall meeting where all the transfer terms are well explained um and then uh you know you get either transfer notices are provided to the workmen or in-person consents are taken in certain other situations especially when workmen are not able to comprehend uh you know the the Dynamics of the transfer then it is also common to have uh the trade unions engaged with them where the trade unions will explain to them that you know these are the terms of the transfer and uh following which a public mood is maybe provide you know put up in the relevant Factory and that's like a deemed consent requirement as opposed to an Express consent so all of these permutation combinations are possible in such cases I think we have time for one more question and the rest that we were unable to pick up like I mentioned um we can respond to those offline after the session uh but I think your response right now uh is a good segue into our last questions Hannah um where uh one of the participants has asked that in case of a license that you're not allowed to sub license uh what how would you deal with licenses or of that nature and if there is a requirement for the buyer to obtain a new license then does the seller have any obligation to assist uh so thank you for that I think let me take the second aspect first does the seller have any obligation to assist the buyer is that right yes so yes so I would say yes 100 yes uh to that whether you're the sell side or the buy side I think it is typical for sellers to provide that Assurance to the buyer and say that look we are giving you of course our business we are selling the business or I'm taking the business from you um and it is but obvious that any uh you know any um documents that need to be signed any licenses need to be procured as the seller of the business they would have more say and they would have to make uh you know provide necessary arrangements necessary or information to the buyer and so it becomes very important to provide that information to provide that Assurance to the buyer and it is typically done in most business purchase agreements I I can't remember for single instance where further Assurance was not provided really uh so it is very important and for the first question on a license what happens if there is no um sub license possible is that is is that right nidhi yeah so in such a case um if a sub license is not possible and I I'm referring to licenses here for licenses and permits um for your business for the operational licenses uh so in such cases of course you will have to make a fresh license Arrangement now what that obviously uh implies is there could be a time Gap because when you're making a fresh application for a license and procuring that license it is a time consuming Affair at least in India so um there could be certain alternate Arrangements that the buyer and seller could also enter into so for example they could have a shared services agreement what is popularly called job work contracts where the seller continues to operate for and on behalf of the buyer in Trust of the buyer uh using its own licenses so you know these kinds of workarounds are also possible but the the the short point being that finally a fresh license needs to be obtained um we're continuing to get more questions in the chat box so like I mentioned previously we'll respond to them offline with all the presentation materials so you'll be hearing from suhana and the team at Qatar and Company um in due course uh thank you so Anna for that was a really thought provoking session uh at least to me um you know some of the key takeaways were that it sounds like um the proof of the pudding is always lies in the eating and uh how successful a business transfer really is will depend on how well one is able to execute it and take it to completion and to that end all the pieces of the puzzle need to fall in place um planning is a key aspect uh for successful implementation of a business transfer agreement to that end it's very important uh to check the transferability of each asset that you're looking to transfer as part of the business undertaking whether that's a license a contract uh or even employees uh Etc it's very important to understand the manner in which uh these will actually stand transferred from the seller to the buyer and to make sure that the contract accurately reflects that um and the second thing so Anna that I think you really touched upon well and something that uh our audience should certainly uh keep in mind the next time they're working on a transaction of this nature are regulatory approvals um one often uh tends to think that uh something like a competition Commission of India approval is triggered uh only when we're considering share sale Acquisitions um but these are equally important when you structure transactions through business transfer asset early instruments as well um so thank you sohana for highlighting that uh before closing I would like to ask each of you to respond to the poll slide um on your screen if we could move to that thank you please provide us with your feedback on today's webinar uh we take this very seriously as part of our continuous uh Improvement program and ongoing 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